DD Support Board and Research Team

[janice shell]

I'd really like to hear his reasoning behind calling it the "Expert" market.

The answer is kind of complicated. Watch this video from OTCM itself:

https://www.otcmarkets.com/index.html

It raises a number of interesting questions. Zinn speaks as if the Expert Market is brand new. But in reality, the Expert Market tier became functional on 23 April 2019:

https://www.otcmarkets.com/files/EOD_Pricing_Specification_v1.7.pdf

In the SEC's proposed amendments to Rule 15c2-11, published in September 2019, the SEC made no mention of any "Expert Market", but as we shall see, OTC Markets suggested there should be one. Of course, as we've just seen, there HAD been one since April of that year. It was first mentioned on this board on 28 August:

https://investorshub.advfn.com/boards/read_msg.aspx?message_id=150820517

https://www.sec.gov/rules/proposed/2019/34-87115.pdf

Slojab wrote to OTC Markets on 29 August 2019 asking about it, and this was the reply he got:

Thank you for your inquiry. The Expert Market is a private market to serve broker-dealer pricing and best execution needs in securities that are restricted from public quoting or trading. Restrictions can be based on issuer requirements, security attributes, investor accreditation and/or suitability risks. Quoting in securities on this market is restricted and OTC Markets does not release quote data directly to investors.

https://investorshub.advfn.com/boards/read_msg.aspx?message_id=150831722

We eventually came to understand that it was just the Grey Market with electronic trade execution. By the time the SEC filed its Final Rule on 16 September 2020, OTCM and others had proposed an "Expert Market", and the SEC seemed somewhat receptive to the idea:

The Commission believes that, under certain conditions and circumstances, it could be beneficial to establish an “expert market” that would enhance liquidity for sophisticated or professional investors in grey market securities, as well as for small companies seeking growth opportunities that might prefer to be quoted in a market limited to such persons. To facilitate the formation and implementation of such a market, the Commission has the authority to issue exemptive relief by order pursuant to Section 36 of the Exchange Act and paragraph (g) of the amended Rule271 that is necessary or appropriate in the public interest, and is consistent with the protection of investors. In this regard, the Commission may consider, among other things, the types of investors who could access quotations in this market and the types of securities that would be quoted in such a market.

In considering any such exemptive relief, the Commission preliminarily believes that any such expert market must not have the potential to develop into a parallel market for which quotations are accessible by retail investors and the general public. To protect retail investors from the harms resulting from incidents of fraud and manipulation in OTC securities for which no or limited publicly available information about the issuers exists to help counteract misinformation, such exemptive relief could focus on the types of investors that have the ability to assess an investment opportunity, including the ability to analyze the risks and rewards.272 Thus, the Commission preliminarily believes that any such exemptive relief should be narrowly tailored to limit access to sophisticated investors, such as qualified institutional buyers, as defined in Securities Act Rule 144A(a)(1); accredited investors, as defined in Securities Act Rule 501(a); investment companies registered under the Investment Company Act of 1940; investment advisers registered under Section 203 of the Investment Advisers Act of 1940; banks, bank holding companies, savings associations, depository institutions, or foreign banks, as defined in Section 3 of the Federal Deposit Insurance Act; and broker-dealers.

https://www.sec.gov/rules/final/2020/33-10842.pdf

Oddly, the SEC seemed unaware that an Expert Market had already existed at OTC Markets for more than a year. In a letter of September 18, 2020 sent to the Division of Trading and Markets, Dan Zinn (who had the starring role in the video linked above) says he's requesting exemptive relief under Section 36 of the Exchange Act (which, according to the SEC in the Final Rule, "was enacted after the most recent substantive amendments to this Rule were adopted."

The exemptive relief sought would serve "to permit Subscribers [broker-dealers] to publish or submit, on a continuous basis, proprietary quotations for certain securities on the Expert Market, without obtaining and reviewing certain specified documents and information that must be current and publicly available, as required under Amended Rule 15c2-11(a)(1)(i), and preserving the applicable documents and information, as required under Amended Rule 15c2-11(d)(1)(i)(A), where the distribution of real-time and delayed quotations is limited to specified categories of sophisticated and professional investors, as described below.3"

https://www.sec.gov/rules/exorders/2012/34-90769-exemptive-request.pdf

OTCM then goes on at some length to describe who will be allowed to see Expert Market quotes: Institutional buyers, accredited investors, a qualified purchaser, as defined in Section 2(a)(51)(A) of the Investment Company Act of 1940, and foreign brokers or dealers. So they are who the "experts" are.

Quoting the SEC, they add, “To protect retail investors from the harms resulting from incidents of fraud and manipulation in OTC securities for which no or limited publicly available information about the issuers exists to help counteract misinformation, such [Expert Market] exemptive relief could focus on the types of investors that have the ability to assess an investment opportunity, including the ability to analyze the risks and rewards.”)

What Grey/Expert companies offer "investment opportunities" that would attract sophisticated investors? Anyone??

Is this happening? Not as far as I can tell:

D. Securities that are the subject of a trading suspension order, revocation order, or issued by a defunct issuer

If a security quoted on the Expert Market is issued by a company that becomes subject to a trading suspension or registration revocation order, or is identified by OTC Link LLC as “defunct,” 20 OTC Link LLC will remove quotations for such securities from the Expert Market. Once the applicable trading suspension order terminates or the subject security is re- registered with the Commission following an applicable Section 12(j) revocation order, the subject security must either undergo an initial information review under paragraph (a) of the Amended Rule or meet the requirements of an applicable exception therefrom to become publicly quoted or quoted on the Expert Market. OTC Link LLC will flag on its website any “formerly suspended” security for such period of time as set forth in OTC Link LLC’s policies and procedures (expected to be two years following the applicable suspension).21

I assume Trading and Markets granted Zinn the relief requested. But as far as I know, OTCM had been doing what Zinn describes above since the fall of 2019.

Here's the link again:

https://www.sec.gov/rules/exorders/2012/34-90769-exemptive-request.pdf

And when you watch the video, enjoy a good laugh at the part where Zinn's asked why the SEC is doing this (insisting on current information for OTC issuers. He chuckles and replies that he wonders about it all the time.