OTC Markets Attorney
OTC Markets: How Public Trading Works Outside National Exchanges
OTC Markets provide a public trading venue for companies that are not listed on national exchanges. Understanding the tier structure, compliance requirements, and the role of securities counsel is essential for companies trading or planning to trade on OTC Markets.
How OTC Markets Work
OTC Markets Group operates the primary alternative trading system for securities not listed on national exchanges such as NASDAQ or NYSE. The platform is organized into three market tiers, each with different disclosure, financial, and governance requirements. OTCQX represents the highest tier with the most stringent standards. OTCQB is the venture market requiring SEC reporting status and basic financial thresholds. The Pink market is the open market with the lowest barriers to trading.
Companies access OTC Markets through different pathways depending on their registration status and the tier they are seeking. SEC reporting companies that file a Form 10 or S-1 registration statement can apply for OTCQB or OTCQX once their registration is effective. Companies already trading on the Pink market can upgrade to higher tiers by meeting the applicable standards.
Compliance Standards by Tier
Each OTC Markets tier imposes specific ongoing compliance obligations beyond SEC reporting requirements. OTCQX companies must maintain a qualified sponsor (typically an investment bank or securities law firm), meet minimum bid price requirements, file annual certifications, and maintain current disclosure. OTCQB companies must certify compliance annually, maintain current SEC filings, and meet a minimum bid price of $0.01. Pink market companies must maintain current information to avoid a "stop sign" designation that restricts trading.
Securities counsel plays a critical role in OTC Markets compliance by ensuring that SEC filings are timely and complete, advising on tier qualification and upgrade applications, coordinating with OTC Markets compliance staff, and addressing any compliance deficiencies before they result in tier downgrades or trading restrictions.
Common Mistakes on OTC Markets
The most common mistakes OTC issuers make include late SEC filings that trigger OTCQB non-compliance notices, failure to file OTC Markets annual certifications, failure to update company profiles when material changes occur, inconsistencies between SEC filings and OTC Markets disclosure, and failure to maintain the minimum bid price requirements for their tier. Each of these failures can result in tier downgrade, which directly impacts trading liquidity and investor confidence.
Frequently Asked Questions
What are OTC Markets?
OTC Markets Group operates three tiers of securities marketplaces: OTCQX (highest standards), OTCQB (venture market), and Pink (open market). Companies trade on these markets by meeting specific disclosure, financial, and governance requirements that vary by tier.
What is the difference between OTCQX and OTCQB?
OTCQX requires higher financial standards, ongoing disclosure compliance, a letter from a qualified OTCQX sponsor, and meeting specific minimum bid price requirements. OTCQB requires SEC reporting status, a minimum bid price of $0.01, and annual certification by a company officer.
Do OTC companies file with the SEC?
Companies on OTCQX and OTCQB must be SEC reporting companies and file all required periodic reports. Companies on the Pink market may file with the SEC or provide alternative disclosure through OTC Markets' Alternative Reporting Standard.
Questions about your specific situation?
Frederick M. Lehrer is a former SEC Enforcement Attorney with over 30 years of issuer-side securities law experience. All consultations are confidential. Flat-fee engagements.