Hello I'm Jenny Riegel from the SEC's
Office of the Advocate for Small
Business Capital Formation. On September
25th, 2019 the SEC proposed amendments to
modernize the rule that broker-dealers
must comply with before quoting
securities in the over-the-counter or
OTC market. An over-the-counter market
allows for the trading of securities via
broker-dealer networks in venues other
than registered exchanges. Many smaller
companies trade over-the-counter rather
than on national exchanges. The current
rule requires that a broker-dealer
review basic information about a company
before initiating a quoted market in the
company's security. Securities that trade
over-the-counter are primarily owned by
retail investors. Because broker-dealers
facilitate investor access to
over-the-counter securities, the SEC has
requirements that broker-dealers must
comply with prior to quoting these
securities. Let's discuss how the rule
works. Exchange Act 15c2-11 requires a
broker-dealer to obtain and review
information about a company prior to
publishing or submitting quotations of a
company's security unless an exception applies.
Under the current rule, a company's
information is not required to be
publicly available. The proposed rule
change would primarily impact smaller
companies and their investors. It would
effectively require that basic current
information such as financial statements
be publicly available for broker-dealers
to quote an over-the-counter security.
The proposal should not affect most
companies that have current and publicly
available information. The proposed rule
change would also limit how broker-dealers
can piggyback on other broker-dealers' review of a company's information.
The proposal includes additional
limitations on quoting shell company
securities. The SEC estimates that there
are over 3,000 companies quoted over-the-
counter without current and publicly
available information. This figure
includes some companies who are
delinquent in their reporting
requirements and others who choose not
to provide publicly available
information. The proposal however would
not affect the ability of most
individual investors to ask their
brokers to submit unsolicited quotations
to buy or sell securities. The proposal
would add other exceptions to facilitate
quotations that may be less susceptible
to fraud and manipulation such as well
capitalized companies whose securities
are actively trading. I encourage you to
look at the sections of the release that
interest you. Liquidity is critical for
companies and their investors and we
want to hear from you on how the
proposal will impact your capital
formation prospects. This video was
produced by the SEC's Office of the
Advocate for Small Business Capital
Formation and is meant to provide only a
very high-level summary of the potential
impacts of this proposal on smaller
companies and their investors. The
release itself provides more detail and an
opportunity for you to comment. The
release can be found on www.sec.gov by
clicking on the drop down "Regulation" tab
at the top of the page and selecting
"Rulemaking Index". We encourage you to
share your feedback with the Commission
and to check out our office's video on
how to comment. We want to hear from you
and we hope you will engage with the SEC
and share your perspective. Help shape
the future of capital raising.
