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98-14 NASD Requests Comment On Limiting Quotations On Over-The-Counter Bulletin Board (OTCBB) To Securities Of Reporting Issuers
Comment Period Expires: February 16, 1998
On December 11, 1997, the National Association of Securities Dealers, Inc. (NASD®) Board of Governors approved the solicitation of comment on a proposed rule that would amend Rule 6530 to limit quotations on the OTC Bulletin Board® (OTCBB) to the securities of issuers that are current in their reports filed with the Securities and Exchange Commission (SEC) or other regulatory authority, and on a proposed rule that would amend Rule 6540 to prohibit a member from quoting a security on the OTCBB unless the issuer has made current filings.
Questions regarding this rule change should be directed to Sara Nelson Bloom, Associate General Counsel, Office of General Counsel, The Nasdaq Stock Market, Inc., at (202) 728-8294 or David Spotts, Senior Attorney, Office of General Counsel, NASD Regulation, Inc., at (202) 728-8071.
Background And Summary
The OTC Bulletin Board is a quotation service that displays real-time quotes, last sale prices, and volume information in domestic securities. Eligible securities include national, regional, and foreign equity issues, warrants, units, and American Depositary Receipts (ADRs) not listed on any other U.S. national securities market or exchange. Unlike The Nasdaq Stock MarketSM (Nasdaq®) or registered exchanges where individual companies apply for listing on the market—and must meet and maintain strict listing standards—individual brokerage firms, or market makers, enter quotations for specific securities on their own behalf through the OTCBB.
The NASD has actively studied the over-the-counter market in an effort to address abuses in the trading and sales of thinly traded, thinly capitalized (microcap) securities. These securities are not listed on The Nasdaq Stock Market or any exchange. Rather, they trade on the OTCBB, in the "pink sheets" published by the National Quotation Bureau, Inc., and in other quotation media where there are no listing requirements. The staff is concerned with the potential for fraud in this market, given the lack of reliable and current financial information about the issuers, and the perception by the public that the OTCBB is similar to a highly regulated market, such as the registered exchanges or The Nasdaq Stock Market. These proposals were developed in an effort to balance the benefits that transparency provides with the need for public information about the issuers. While the OTCBB provides real-time quotations for these securities, and other quotation media for OTC securities do not, transactions in OTC securities are nonetheless subject to real-time last sale trade reporting. These trade reports are publicly disseminated through market data vendors on a real-time basis.
In light of the above, the NASD Board approved the solicitation of comment on rules that would:
Under these rules, members will be permitted to enter quotations only for issuers that are current in their reporting obligations. With regard to most of these issuers, the filings would be made through EDGAR.1 With regard to non-EDGAR filers, such as foreign issuers, insurance companies and depository institutions, members must provide the reports to the NASD, but the reports may be provided to the NASD by any market maker in the security.
The NASD proposes that the continued quotation of non-current issuers be permitted for a 10-calendar day grace period. If the issuer does not become current in its filing requirement during the 10 calendar days, quotations would not be permitted on the OTCBB. The NASD is also considering affixing a modifier to the symbol of the OTCBB security to reflect when an issue is not current during this 10-day grace period. The NASD encourages comment on whether 10 calendar days is an appropriate grace period.
While the proposed rule language limits the eligibility of securities issued by depository institutions to those that provide reports pursuant to Section 12(i) of the Exchange Act, we specifically request comment on whether non-Exchange Act reporting depository institutions that provide publicly available financial reports to federal banking regulators (such as Call Reports) should also be eligible for quotation.
The NASD contemplates delaying the effectiveness of the rule for up to one year for those securities quoted on the OTCBB on the rule's effective date, in order to permit market makers, issuers, and investors to take appropriate action. The NASD encourages comment on means of accommodating the potential large influx in Exchange Act registration statements, including phasing in issuers over six, nine and 12-month staggered periods.
Request For Comment
The NASD encourages all members and interested parties to respond to the issues raised in this Notice. Comments should be mailed to:Joan Conley
Office of the Corporate Secretary
National Association of Securities
1735 K Street, N.W.
Washington, D.C. 20006-1500;
or e-mailed to:
To be able to conclude the NASD's review within a reasonable period of time, comments must be received by February 16, 1998.
Text Of Amendments
(Note: New language is underlined; deletions are bracketed.)
6530. OTCBB Eligible Securities
A Member shall be permitted to quote the[The] following categories of securities [shall be eligible for quotation] in the Service:
Rule 6540. Requirements Applicable to Market Makers
1 EDGAR (Electronic Data Gathering, Analysis, and Retrieval) is the SEC system for the receipt, acceptance, review and dissemination of documents submitted in electronic format.