DD Support Board and Research Team

[janice shell]

In your example, the entity was an SEC registered security. oTC Markets is not a registered security.

The SPAC, Stable Road, issues securities that are registered with the SEC. Momentus, the private company that was to merge with Stable Road, presumably has issued securities of its own that were involved in the planned merger transaction. Stable Road is currently doing a PIPE offering.

Although OTC Markets trades on its own OTCQX tier (or, as they prefer we say now, "market"), it has no securities registered with the SEC. Its stock was issued pursuant to legitimate exemptions from registration.

But in neither case does it really matter whether the company in question has SEC-registered stock. The agency has jurisdiction of any U.S. company that issues securities. OTCM's ATS, OTC Link is registered with the SEC as a broker-dealer and is a member of FINRA. Obviously, OTC Markets' status as an issuer has no relevance to the question under discussion. It is not a stock exchange or a stock market; all its issuers trade over-the-counter, as its name suggests.

OTCM is not a traded security. So any authority that the SEC has based on securities does not automatically inure to OTCM, which is neither a security nor an exchange.

Well, it IS a traded security, as noted. It closed at $48.99 on Friday. And no, it is not a stock exchange. But it is a broker-dealer and an ATS, and as such, it is regulated by both FINRA and the SEC.

Moving on to your actual question, which is this:

Can you tell me exactly which law(s) and/or regulation(s) and rule(s) that you think would provide authority and basis for the SEC to dictate what the OTCM can or cannot call its tier system?

As I showed in an earlier post, in its original proposal concerning long-needed amendments to Rule 15c2-11, the SEC did not suggest the creation of an "Expert Market" by any name. OTC Markets subsequently proposed it, and it's briefly discussed in the final rule. But even so, OTCM had to ask the SEC for exemptive relief under Section 36 of the Exchange Act in order "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)..."

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

Section 36 of the Exchange Act "provides the Commission with general exemptive authority with respect to that Act." And so it obviously could have simply said NO to the creation of the Expert Market or to anything related to it, I should think. Including its name.

Section 36:

Except as provided in subsection (b), but notwithstanding any other provision of this chapter, the Commission, by rule, regulation, or order, may conditionally or unconditionally exempt any person, security, or transaction, or any class or classes of persons, securities, or transactions, from any provision or provisions of this chapter or of any rule or regulation thereunder, to the extent that such exemption is necessary or appropriate in the public interest, and is consistent with the protection of investors.

https://www.law.cornell.edu/uscode/text/15/78mm

https://www.sec.gov/regulatory-actions/exchange-act-exemptive-applications

When I wrote my original post, my real objection was to the fact that OTCM had created its "Expert Market" back in April 2019. While it wasn't exactly a secret--OTCM eventually added a few bits about it to its website--it wasn't fully explained, either. AND OTCM didn't request what was apparently necessary relief under Rule 36 until December 2020, by which time the Expert Market had been offering its "experts" quotes for what should have been Grey Market issuers' stock for nearly a year and a half.

https://investorshub.advfn.com/boards/read_msg.aspx?message_id=164967926

So the original rule under which the SEC could have objected was Rule 15c2-11. I think the SEC should have made a fuss when it finally figured out what was ALREADY going on with the "Expert Market". It had an opportunity to do something when it received the request for exemptive relief. Apparently it allowed the relief; after all, the Expert Market is still with us.

Though I haven't actually seen a reply to OTC Markets' request. I'm not sure where to look.