GOING PUBLIC – THE PROCESS
Taking your company public can be a long, time consuming and costly process.
It is, of course, best that the company first retain very good legal counsel with extensive experience in working with SEC filings and an accountant that is capable of doing proper SEC audits.
The more experience you attorney and accountant has in SEC filings, the easier and faster your filing should go and with less possibility of errors.
Legal Counsel: A qualified securities attorney is vital in guiding the company through the numerous laws and rules, both state and federal, involving the raising of capital, whether private or public. Every entrepreneur and their investors must abide by all securities laws because non-compliance penalties can be quite severe. It would be wise to learn just how often your legal counsel does deal with SEC documents, because the laws and rules change constantly, and your attorney must always be on top of the changes.
Company Auditor: It is vital that the company have an auditor both experienced and qualified to prepare audits for filing with the SEC. The Sarbanes Oxley Act of 2002 made numerous changes in the environment affecting auditors of publicly traded companies. Among other things, the Act requires that auditors of public companies to register with the Public Company Accounting Oversight (PCAOB) Board and participate in a required inspection program. Be sure that your auditor does qualify. The company must be prepared to supply the accountant all information on the company, from inception to date.
Cost Involved: Because of additional liability involved in doing both legal and accounting for SEC filings, the amount that both the attorney and accountant will charge will not necessary be on an hourly basis. Depending on the complexity of the company and legal work required, an attorney might charge anywhere from $15,000 to $30,000 for preparing an S-1 offering memorandum and taking it through the SEC process. Certified audits for the company will depend on the stage of the company and how complex the audit might be. It can also depend on how good the company is at supplying the auditor up front everything that is anticipated for the completion of the audit.
The S-1 Registration Statement - A “Registration Statement” is the document submitted to the SEC for the registering of the securities of the company and taking the company “public”. Any company desiring to make a public offering of its stock must first file a registration statement with the SEC. The normal document filed with the SEC for this purpose is Form S-1.
The registration statement will contain an enormous amount of information about the company and the principals of the company and must include audited financial statements.
The Registration statement has the following two principal parts.
Part 1 is the prospectus, the legal offering or “selling”{ document. In this part of the document, the “issuer” of the securities must describe the important and significant facts about the company, including its business operations, financial conditions and management. All potential investors must have access to this information prior to making an investment.
Part 2 contains a lot of additional information that is delivered to the SEC but not necessarily required to be given to the investor.
The many items that must be disclosed in the Form S-1 include, but are not limited to the following:
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Front cover page with Summary Information
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Risk factors
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Use of Proceeds
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Determination of Offering Price and Dilution
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Selling Shareholders and Insiders
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Directors, Executive Officers, Promoters and Control Persons
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Plan of Distribution
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Legal Proceedings and Indemnification
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Description of Securities
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Descriptions of Business
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Description of Property
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Audited Financial Statements
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Management’s Discussion and Analysis of Financial Condition and Results of Operations
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Certain Relationships and Related Transaction
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Market for Common Equity and Related Stockholders Matters
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Executive Compensation,
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Indemnification of Officers and Directors
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Expenses Involved of Issuance and Distribution of Offering
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Recent Sales of unregistered Securities
It is very important to understand that the purpose of the S-1 Registration Statement is full disclosure. You cannot keep any secrets about your business. You must be prepared to live with full and complete disclosure of almost every activity of your company in the future after the acceptance of your of your S-1 document by the SEC. Also, after the clearance of your S-1, you must then begin to file the annual and quarterly reports as well as other filing that might be required.
Information on the S-1 registration statement may determine several important factors that will affect your company in the future. For example, whether you check the box on the front page of the document declaring whether the company IS a “shell company” or not. (see “SHELL COMPANY”)
There are several types of offerings that can be made using the Form S-1. These could include:
- An Initial Public Offering (IPO) of the company stock through an underwriter (broker-dealer)
- A Direct Public Offering (DPO) of company stock without an underwriter. This could include the selling of the stock, primarily by the principals of the company.
- A Selling Shareholder offering in which only present shareholders are registering their shares to be sold “over the counter.
(NOTE: Many S-1 offerings will include the registration of company stock for sale to the public as well as registering the stock of present shareholders.
The legal counsel of the company will assist in making numerous decisions that will be a part of the S-1 offering.
SEC filing – Wikipedia
Form S-1 Registration - SEC
A “shell” company is basically a company with little or no assets or business.
The Securities and Exchange Commission, under Rule 144(i)(1) describes a “shell” company as a company that now or at any time previously has been an issuer, that has:
(A) No or nominal operations; and
(B) Either:
(1) No or nominal assets; or
(2) Assets consisting solely of cash and cash equivalents; or
(3) Assets consisting of any amount of cash and cash equivalents and nominal other assets.
A company can declare itself to be a “shell” company in the filing of their registration statement or on the cover page of an Form 10Q or 10K filed with the SEC.
The line below appears on every 10Q or 10K filing.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes [ ] No [x]
The Rule 144 does not include a development stage company pursuing an actual business, a business combination related shell company, as defined in Rule 405, or an asset-backed issuer, as defined in Item 1101(b) of Regulation S-K [AB].
Rule 111(i)(1) prohibits the use of the rule for sales of restricted stock and stock held by affiliates into the public market if the issuing company is now or ever has been a “shell company”, unless the requirements of Rule 144(i)(2) are satisfied. The following explanation is qualified in its entirely by reference to the complete text of Rule 144* (see below).
There are certain restrictions on shareholders in selling their stock that was issued when the company was a “shell” company. A ruling by the SEC places strong restriction on stock being sold that was issued when the company was a “shell” company.
It is important that the officers of a public company become very familiar with the rules and regulations pertaining to the sale of restricted securities under Rule 144. (see “Rule 144”)
The CUSIP Service Bureau is operated by Standard & Poor's on behalf of the American Bankers Association (ABA).
The CUSIP number consists of a combination of nine characters, both letters and numbers, which uniquely identify the company or issuer and the type of security. The first six characters identify the issuer and are assigned in an alphabetical fashion; the seventh and eighth characters (which can be alphabetical or numerical) identify the type of issue; and the last digit is used as a check digit.
After the SEC Clears the Registration Statement – Selling the Shares – After the Registration Statement is finally cleared by the SEC any you receive your “Notice of Effectiveness”, which is the document that the SEC sends to the company which simply means that the SEC has no further comments or questions and you can now proceed to the sale of the securities.
If you are using a broker-dealer to sell the company securities, the broker-dealer will handle all sales, the funds will go into an escrow account and the funds disbursed when the minimum of the offering is reached.
If the sale of the securities is being done by the principals of the company, it is important that every sale means any state and federal laws and regulations. It is extremely important the company receives a “stock Purchase Agreement” or “subscription agreement” and a check from every single buyer. The documents will be required by FINRA as a part of Form 15c2-11 that will be filed with them.
If it is large offering involving high dollars and handled by a broker-dealer, there will usually be a large number of purchasers.
If the offering is being handled by the principles of the company, it is best to have at least 35 shareholders or more. FINRA will also ask the relationship between the principles and the shareholders that purchased shares.
After the clearance of the registration, and during the selling of the offering, the company should file for a CUSIP Number. (see “CUSIP” NUMBER”)
Also, the company should retain a Transfer Agent (see “TRANSFER AGENT”)
After Shares are Sold - After the company has sold whatever amount of shares they are going to sell under the Registration Statement, the company should then seek a broker-dealer that can file the 15c2-11 with FINRA in order to receive the Stock Symbol (see (“STOCK SYMBOL”) and (“15c2-11”)
Many broker-dealers will not file a 15c2-11, and it may be somewhat difficult to find one that will. It can be a long process and take up a lot of time. (see “BROKER-DEALER”)
Broker - Dealer - A “broker” is defined in the Securities Act of 1934 as “any person engaged in the business of effecting transactions in securities for the account of others” and then defines “dealer” as any person engaged in the business of buying and selling securities for his own account through a broker or otherwise”
A “broker” is only an agent who executes orders on behalf of clients. A “dealer” acts as a principal and trades for his or her own account. Because most brokerages act as both brokers and principles, the term broker-dealer is commonly used to describe them.
Therefore, “a broker-dealer” is a person or firm in the business of buying and selling securities, and is operating both as a broker and a dealer, depending on the transaction.
Many broker-dealers are “independent” firms that are solely involved in broker-dealer services while many others are businesses our subsidiaries of commercial banks, investment banks or investment companies.
In the United States broker-dealers are tightly regulated under the Securities and Exchange Commission (SEC). They may be further regulated by Financial Industry Authority (FINRA). They may also fall under some state regulations, usually referred to as “Blue Sky Laws”
Broker-dealer - Wikipedia
Shareholder List - Stock Register - Shareholder is any person, company, or other institution that owns at least one share in a company. A shareholder may also be referred to as a "stockholder".
Shareholders are the owners of a company. They have the potential to profit if the company does well and the potential lose if the company does not. If a shareholder owns a significant number of shares of a company, that shareholder may have some control of the company’s business decisions.
Shares - A unit of ownership interest in a corporation or financial asset.
Owning shares in a company does not necessarily mean that the shareholder has direct control over the business's day-to-day operations, being a shareholder does entitle the possessor to an equal distribution of any profits if dividends are declared. However, if a person owns 51% of a corporation, that individual would be in a position to elect all directors and call the shots.
The two main types of shares are common shares and preferred shares. Preferred shares may have certain rights and privileges that common shares of a company may not have. (see (“Preferred Shares”)
In the past, a shareholder of a company received a physical paper stock certificate that indicated that they did own the shares. However, today, brokerages have the ability to maintain electronic records that show the ownership in detail and in most cases with public companies, the shareholder may never receive the paper certificate. Owning the “paperless” share makes conducting a trade a simpler and much more streamlined process. (see (“Street Name”)
Shareholder Register - A “Shareholder Register” of a Company, especially a public company, is usually maintained by the Transfer Agent contracted with by the company. (see “Transfer Agent”)
The “Shareholder Register” differs from a “shareholder list’ in that the shareholders list is usually updated only once a year, whereas the Shareholder Register must keep track of all shareholders on a current basis.
The Transfer Agent then maintains the company’s “Shareholder Register”. The Shareholder Register is a list of all active shareholders of a company’s shares. It is maintained and updated on an ongoing basis, every time a shares is sold.
The Shareholder Register requires that every current shareholder be properly recorded, along with certain information on that shareholder and the stock certificate. This includes the name, address, number of shares held by the individual, the stock certificate number, whether the stock is free trading or restricted and sometimes other information. The shareholder register is fundamental in determining ownership of a company at any given time.
If a company is not public and only has a limited number of shareholders, the company may act as their own transfer agent, keep their own stock register, and make and distribute their own stock certificates.
“Stock Transfer Agent” is a term used in the United States and Canada. Other countries may use a different name such as Share registry, Transfer Secretary or a variety of other names, but all do about the same thing.
A public company will usually retain a Stock Transfer Agent which is then considered as the official keeper of the corporate shareholder records.
When a shareholder of a company desires to sell their shares, they would send the stock certificate to the Transfer Agent, along a stock power (see “Stock Power”)
The Transfer Agent will verify that the owners of the stock are genuine, usually through a signature guarantee such as medallion guarantee. (see (“Medallion Guarantee”)
The Medallion Guarantee - A medallion guarantee is usually issued by a bank or a broker-dealer and is used in the United States and Canada, but not in other countries. Because of the liability involved in issuing a medallion guarantee, it is normally only issued to customers of the bank. If your bank does not issue the medallion guarantee, it may be difficult to get one.
The medallion guarantee is backed by a bond and protects the issuer of the security and their Transfer Agent from fraudulently transferred securities.
Therefore, if a company has shareholders in other countries that desire to sell their stock, they must produce a stock power with a signature guarantee that will be accepted by the Transfer Agent. Each country does have their particular agency that can guarantee a signature. It could be something similar to our a Notary public, or justice of the piece.
The Transfer Agent must feel comfortable that the person endorsing the stock certificate or stock power is the appropriate person to make such an endorsement and in fact, the real owner of the certificate.
The Transfer agent can also accept a “Lost Certificate Affidavit ” (see “Lost Certificate”) and issue a new certificate to replace a lost or destroyed one.
The larger Transfer Agents can offer a variety of other services.
Transfer Agents can charge a set-up fee, a monthly fee, a fee for each certificate made, and a fee to cancel their services. Such fees can widely range between different Transfer Agents. When retaining a Transfer Agent, it is important know and understand all possible charges.
It is important for a company to choose the right Transfer Agent for their particular needs.
Stock Transfer Agent – what is it? Wikipedia
FINRA – “FINRA” stands for Financial Industry Regulatory Authority and is the largest independent regulator for all securities doing business in the United States and oversee nearly 4,430 brokerage firms. The company is a private company and has 162,155 branch offices and 629,530 registered securities representatives and approximately 3,200 employees. FINRA claims that their chief roll is to protect investors and to maintain fairness of the U. S. capital markets.
FINRA was formed by a consolidation of the enforcement arm of the New York Stock Exchange (NYSE) and the NASD.
FINRA is often mistaken for a government agency because they have such unbelievable power over broker-dealers and public companies. After a company clears its Registration Statement (S-1) with the SEC, they then must file the 15c2-11 with FINRA, which means presenting as much or more information about the company and its principles as was presented to the SEC, going through rounds of comments and questions and waiting, sometime for months before getting the symbol to allow the company to trade on the OTCBB and OTCQB.
FINRA gives a company a symbol (see “SYMBOL”) after the company, through a broker-dealer files a15c2-11, (see “the 15c2-11”) and it is finally accepted by FINRA, usually after several rounds of questions and comments.
FINRA licenses individuals and admits firms to the industry, writes rules to govern their behavior, examines them for regulatory compliance, and is sanctioned by the U.S. Securities and Exchange Commission ("SEC") to discipline registered representatives and member firms that fail to comply with federal securities laws and FINRA's rules and regulations. It provides education and qualification examinations to industry professionals. It also sells outsourced regulatory products and services to a number of stock markets and exchanges.
FINRA – Link to website
Financial Industry Regulatory Authority - Wikepedia
Form 15c2-11 – A “Form 15c2-11” is a very lengthy and comprehensive document that must be filed with FINRA (see “FINRA”) in order for a company to receive a Symbol. (see “Symbol”) A Form 15c2-11 must be submitted by a Broker (see Broker”)
The Securities and Exchange Commission (SEC), under the Securities Act of 1934, requires that a broker-dealer must have in its possession certain categories of information before posting a quotation for the issuing company’s stock. This is the type of information that is submitted to the broker-dealer to FINRA to receive a symbol for the Company.
The completion of Form 15c2-11 can be a very lengthy and time consuming process. While the Form itself seems not to be too long, the information and supporting documents can involve a very large 3 ring binder and more.
Putting together the information for a Form 15c2-11 will deeply involve the officers of the Company and the broker-dealer in preparing the needed information.
After the broker-dealer believes the all of the information is complete and submits the information to FINRA, FINRA may take two to three weeks to review the material and respond. They will then usually come back with a number of comments and questions. This may happen several times before the 15c2-11 is accepted and the Company finally receives their Symbol and can then be quoted on the OTCBB and OTCQB. (see “OTCBB & OTCQB”) The entire process may take several months.
While it is referred to as “Form 15c2-11, it is not just a form that is completed, but the Company must prepare two 3 ring binders containing an enormous amount of material, including such things as copies of almost all corporate documents, including articles, bylaws, minutes, contracts and agreements, shareholder list from the Transfer Agent, (see “Transfer Agent”) stock purchase agreements of every shareholder, and more.
There are several documents that the Broker/Dealer will require for their due-diligence on a company, prior to preparing and filing the Form 15c2-11. Documents that will be required by the Stock Broker that will be submitting the Form 15c2-11 to FINRA includes:
An idea of some requirements and information pertaining to a Form 15c2-11)
- Detailed description of the issuer's business, products/services offered, and the source of revenue.
- Description of facilities (location, square footage, type of space (office/factory/etc), and whether owned or leased.
- Name of current Chief Executive Officer and members of the Board of Directors.
- CUSIP number for the Company.
- Certificate of Incorporation with amendments
- By-Laws
- Free-trading sample certificate photocopy (front & back)
- List of a shareholders and how they came to be shareholders, including the affiliation of each shareholder to the principals of the company.
- Does the issuer report to EDGAR? (see “EDGAR”) If so, are you current with your filings. Provide copies of the Issuers last 10K and all 10Q's filed since the fiscal year end.
It is very possible that FINRA may require some shareholders that hold a large block of free trading shares to do a Lock-up agreement so that they can only sell a small amount of their shares in a given time frame. (see “Lock up Agreement”)
After the Broker-Dealer files the 15c2-11, FINRA will respond with many questions and request for additional information. Some questions will need to answered by the principals of the company and some will need to be answered by the Broker. (see “FINRA questions for 15c2-11”)
There is much more involved in completing a 15c2-11. Also there are Red Flags that the Broker/Dealer and FINRA will look for when examining a Form 15c2-11. Red (see Examples of Red Flags when Filing 15c2-11)
Ticker Symbol – A “stock symbol”, usually referred to as a “ticker symbol” is a short abbreviation of letters and/or numbers to uniquely identify public traded shares of a particular stock of a company which is quoted on a particular stock market. The “ticker symbol” refers to the symbols that used to be printed on the ticker tape of a ticker tape machine that was used in the past by the stock exchanges and the noise that the machines made.
The modern letter-only ticker symbols were developed by Standard & Poor’s (S&P) designed to bring a national standard to the investing public.
A “ticker symbol” is issued to a company by the Financial Institution Regulatory Authority (FINRA). The SEC does not issue ticker Symbols.
A ticker symbol is required by a company that is publically traded on the OTCBB, OTCQB, NASDAQ, NYSE or other exchanges. (see “Stock Exchanges)
Getting a Ticker Symbol for a company requires three things:
1. You have to have free trading stock. (Be public)
2. You have to become an SEC reporting company, meaning a company that is required to file reports under the 1934 “Filing Reports” Act. (Filing annual and quarterly reports on EDGAR.)
3. You have to have the Financial Institution Regulatory Authority (FINRA) issue the company a Ticker Symbol usually by filing a From 15c2-11. (see “Form 15c2-11) and (FINRA)
Explanation of Ticker Symbol - Wikipedia
FINRA – Compliance with the Information Requirements of SEA Rule 15c2-11
Filing Annual and Quarterly Reports to the SEC - Every public company that quotes on an exchange, except for the Pink Sheets must file a Form 10K for their year end and a Form 10Q quarterly with the SEC. These reports are usually by the corporate attorney, and are posted on EDGAR (see “EDGAR”) The purpose of these filings is so that investors can have accurate and current information on the company. The Form 10K must have audited financial statements which the Form 10Q is filed without audited financial statements.
The annual Form 10K requires much more information about the company than the quarterly 10Q does.
There are other documents containing information about actions of the company that might need to be filed with the SEC. It is vital that a public company has counsel that is experienced in making such filings and will see that the documents are filed accurately and on time. Late filings can cause the company difficulties, including being kicked off of the OTCBB and OTCQB into the Pink Sheets. Most, but not all documents that are required to be filed with the SEC will be placed on EDGAR.
The accuracy of the From 10K and Form 10Q must be certified accurate by the principal executive officers of the company.
The primary purpose of EDGAR is for the benefit of present investors and potential investors to have current information on public companies. All EDGAR information is published on the EDBAR web-site for anyone to see. (see link below)
EDGAR increase the efficiency and fairness of the securities market for the benefit of investors, corporations, and the economy by accelerating the receipt, acceptance, dissemination, and analysis of time-sensitive corporate information filed with the agency.
All companies, foreign and domestic, are required to file registration statements, periodic reports and many other forms, electronically through EDGAR.
Anyone with an interest in a company can access and download the information retained on EDGAR for free.
Filings and Forms - SEC
XBRL – “XBRL” stands for “eXtensible Business Reporting Language.” It is referred to as a freely available, open, and global standard for exchanging business information.
XBRL is now required on all documents that contain financial information that is filed with EDGAR. It simply means that all lines of financial information in a document which is filed with EDGAR must contain the XBRL tagging. This includes such documents as the annual 10K and the quarterly 10Qs and may be required on a number of other documents which are filed with the SEC.
While the original requirements for XBRL started on larger companies in 2005, the requirements for XBRL tagging actually became a requirement for small companies in 2011. Now, every filing with EDGAR must be XBRL tagged.
XBRL requirements have added significantly to the cost of a company to file the required documents with EDGAR. Additional cost per filing could range from a couple of thousand dollars per document to as low as $200 per document, depend on the document and how extensive the document might be. For example a 10K will have substantially more financial information that a 10Q might have.
In the past few years many companies sprang up to do XBRL tagging. The cost for XBRL tagging varies significantly between these companies. Some specialize on very large companies while others specialize on smaller reporting companies.
The key to having a firm do the XBRL tagging for your company filings is cost, timing and efficiency. It is normal that an auditor for a company may not complete the audit or review of a company to allow significant time for the XBRL tagging to be completed and the document filed. It is important that the company auditor understands the timing involved in the XBRL tagging and filing the document.
Can an XBRL firm meet your needs at a low cost, quickly, and correctly?
XBRL - What is it – description – Wikipedia
Securities and Exchange Commission – All About XBRL
DTCC - The “Depository Trust & Clearing Corporation” (DTCC) is the world’s largest post-trade financial services company. The Company was formed in 1999, combining The Depository Trust Company (DTC) and National Securities Clearing Corporation (NSCC). The Company provides an efficient and safe way for buyers and sellers of securities to make their exchange, and thus “clear” and “settle” stock transactions and to provide central custody of securities.
Through its subsidiaries DTCC provides the clearance, the settlement and information services for stocks, as well as many other types of securities.
If you give your broker-dealer a stock certificate to be sold, the transaction will take place through the workings of the DTCC. (see “Street Name”) and (“Broker-Dealer”)
DWAC - “DWAC” stands for “Deposit/Withdrawl At Custodian. It is a method of electronically transferring new shares or paper share certificates from the Depository Company (DTC). DTC (see “DTC”) acts as the clearinghouse for settling trades in corporate securities. DWAC (The Deposit/Withdrawal at Custodian) is one of two ways of transferring stock between broker/dealers and the DTC. The second way being the Direct Registry System (DRS) method. Both ways enable investors to hold securities in registered form on the books of the corporate transfer agent rather than in physical form. DRS is different from DWAC in that shares in DRS have already been issued to a shareholder and are held electronically on the books of the company transfer agent.
Stock Exchanges - A “stock exchange” is an exchange which provides services for stock brokers and traders in trading stocks, bonds and other securities. The various stock exchange provide facilities for the issue and redemption of securities and other services.
There are a number of major “Stock Exchanges” in the United States that are used by brokers for the handling of stock.
Exchanges are located all around the world. Almost every major country has their own exchanges.
Many of the exchanges have certain requirements for a stock to trade through that exchange. Some exchanges are far more rigid than others. Requirements may include the number of shareholders, price of the stock, sales and/or earnings, audited financial statements, be fully reporting to the SEC, and others.
Some exchanges used by brokers in the U.S. include:
NASDAQ Stock Market
The NASDAQ Stock Market stands for National Association of Securities Dealers Automated Quotations, is an American stock exchange and is the second-largest stock exchange by market capitalization in the world. As of January, 2011, NASDAQ had approximately 2,711 listings with a total capitalization of over $4.5 trillion. The NASDAQ has more trading volume than any other electronic stock exchange in the world. NASDAQ is owned by NASDAQ QMX Group which owns the OMX stock exchange network.
It is often the goal of young public companies to be listed on a stock exchange, usually NASDAQ. Listing on NASDAQ allows for more trading of a company's stock. A company has to meet certain requirements for listing on the NASDAQ reporting system.
The present requirements are as follows:
- Total Assets: $4 million
- Total Stockholders Equity: $2 million
- Registration under Section 12 (g) of the Securities Exchange Act of 1934 or equivalent
- Public Float (shares): 100,000
- Market Value of Public Float: $1 million
- Shareholders: 300
- Minimum Bid Price of Stock: $3
- Number of Marketmakers: 2
NASDAQ – Home page
National Stock Exchange (NSX)
The National Stock Exchange (NSX) is an electronic stock exchange located in Chicago Illinois and was founded in 1885 in Cincinnati, Ohio, as the Cincinnati Stock Exchange. In 1976, it closed it physical trading floor and became an all-electronic stock market and in 1995 moved its headquarters to Chicago and in 2003, changed its name to the National Stock Exchange. Owned by its members since inception it demutualized in 2006.
National Stock Exchange - NSX Home page
New Yourk Stock Exchange (NYSE)
The New York Stock Exchange (NYSE) is a stock exchange located in lower Manhattan, in New York. It is by far the world’s largest stock exchange listing about $13.39 trillion in market capitalization as of Dec. 2010. Average trading value in 2008 was approximately $153 Billion.
The NYSE is operated by NYSE Euronext (NYSE:NYX) which was formed by the NYSE’s 2007 merger with the fully electronic stock exchange Euronext. The NYSE trading floor is located at 11 Wall Street in lower Manhattan, and is composed of four rooms used for the facilitation of trading.
NYSE Euronet – Home page
The Over the Counter Buletin Board (OTCBB)
It is important to note that the OTCBB, the OTCQX, the OTCQB and the OTC Pinks are not “exchanges” – they are merely “listing services”.
The OTC Bulletin Board (OTCBB) is an interdealer electronic quotation system in the United States that displays real-time quotes, last-sale prices, and volume information for many over-the-counter equity securities that are not listed on a national securities exchange such as NASDAQ. Broker-dealers who subscribe to the system can use the OTCBB to look up prices or enter quotes for securities that are listed on the OTCBB.
The OTCBB has been owned by FINRA (see ”FINRA”) who runs and provides regulatory services to the OTCBB. The OTCBB formerly collected 100% of quotes, but the number dramatically declined when OTC Markets (formally Pink Sheets) (see “OTC MARKETS”) introduced the OTCQB and the OTXQX. As of 2012, most broker-dealers in the U.S. prefer the OTCQB for their transactions.
For the past couple of years FINRA has attempted to sell the OTCBB, but could not find a buyer. OTC Markets, back when they were Pink Sheets was the leading contender for purchasing the OTCBB, but terms could not be reached and OTC Markets decided that they could easily compete with OTCBB, and do a better job, so instead of purchasing the OTCBB, they formed the OTCQX and OTCQB. (see “SALE OF OTCBB”)
In September of 2010, FINRA announced that it had reached an agreement with Rodman & Renshaw, a well-known investment firm, for Rodman & Renshaw to purchase certain assets of the OTCBB from FINRA. In recent months, there has been no news releases about the sale of the assets to Rodman & Renshaw, so it is uncertain how the sale stands.
Now, every company that is quoted on the OTCBB is also quoted on the OTCQB except for just a few companies. Many marker makers have pulled their quotes from the OT CBB and are quoting only on the OTCQB.
Also, the OTCBB has kicked off thousands of companies for what they refer to as “failing to comply with Rule 15c2-11. This usually means that the broker for the company had dropped the OTCBB and is using the OTCQB. It has taken some time for investors and issuers to realize that it has become much more important for a security to be listed on the OTCQB or OTCQX than on the OTCBB.
An example of de-listing of companies from the OTCBB occured on February 15, 2011. In about 2 weeks, the OTCBB dropped 622 companies. The reason given for the mass de-listing was “Failer to Comply with Rule 15c2-11”. This basically meant that the market maker for the company that was de-listed quit using the OTCBB and went to the OTCQB.
FINRA Issues New Notice Requirements for OTC Companies – Berenbaum Weinshienk PC
OTC Markets Group (OTCQX, OTCQB, PINK SHEETS)
The OTC Markets Group, Inc. is a private company that provides services to the U. S. over the counter securities market including electronic quotations, trading, and messaging and information platforms. It is not a stock exchange but facilitates the exchange of securities between qualified independent brokers.
The Company was established in 1913 and The National Quotation Bureau (NQB) and for decades, they reported quotations for both stocks and bonds by publishing the quotations in the paper based Pink sheets and Yellow Sheets. The publications got their names from the color of paper they were printed on. The Pink Sheets were published week on pink colored paper.
OTCQX - (Owned by OTC Markets)
The OTCQX was established in 2007 and is the top tier of the OTC Markets group and is only for companies that meet certain higher standards, such as being fully reporting to the SEC, number of shareholders, price of stock, etc.
OTCQB - (Owned by OTC Markets)
The OTCQB is the middle tier of the OTC Markets group. To be listed on the OTCQB, a company has to fully reporting to the SEC. Thus, all information on the company is reported every quarter to the SEC and is posted on EDGAR. There are no financial or qualitative standards to be on this tier, only fully reporting.
OTC Pink is a trading marketplace for stocks that may not be quoted on other major exchanges such as the New York Stock Exchange or Nasdaq. There are over 2 thousand companies listed on the OTC Pinks. Now, anyone can see what the quote of any company listed on any of the quoting services by putting in the symbol of the company on the OTC Pink website.
The major difference between the OTC Pink Sheets and other listing services is there are no financial requirements for a company to list on the OTC Pinks, while other listing services such as the OTCBB and OTCQB and OTVQX all require that the Company have audited financial statements and file periodical reports with the SEC to be posted on EDGAR. Stocks quoted on the OTC Pinks do not have to be “reporting” companies. There, these companies are not require to supply timely and current information to investors.
Companies listed on the OTC Pinks are usually those that do not desire to be a “reporting” company, cannot afford the cost of filing annual and quarterly reports to the SEC and companies that may have been a “reporting” company and either quit reporting to the SEC or are late in their filings. Any company that is a reporting company and fails to keep their reporting current will be “de-listed” from another exchange or reporting service and dropped into the Pink Sheets. The OTC Pink actually has several levels or tiers which will show up on the web.
OTC Pink Current Information:
These are companies that have submitted information to OTC Pinks that is not older than six months. This includes financial information on the company. However, financial statements do not have to be audited. Companies may be “shell” companies or development stage companies.
OTC Pink Limited Information
These are companies that are unwilling or unable to meet OTC Pinks’ Guidelines for Providing Adequate Current Information, but have submitted some but not all of the information required. Such companies may have problems getting the financial information, are in some economic distress or perhaps have filed bankruptcy.
OTC Pink No Information
This indicates companies that are unable or unwilling to provide any disclosure information to OTC Pinks or to the public. The companies do not make any current information available. The companies may include defunct companies that have ceased operations as well as companies that may have questionable management and market disclosure practices. The securities are considered very risky.
OTC Pink Caveat Emptor – Buyer Beware
This means that OTC Pink has a real concern about the company or activities associated with the company. This could such things as a spam campaign or questionable stock promotion or a know investigation of fraudulent activity committed by the company their insiders. OTC Pink may refuse to give a quote on these stocks.
Home page – OTC Pink
What does it mean when a stock trades on the Pink Sheets or the OTCBB? - Investopedia
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