Grey (or Expert) to Pink

[Potse]

SEC's shell policy: retroactive or not?......

The way the SEC and OTC Markets have handled this fundamental change to the OTC market is ridiculous. Before these two entities set deadlines for implementation, all of the details/minutia of this change is something that should have been worked out and settled on a long time ago. I find it mind-boggling this far into the process that neither OTC Markets nor the SEC apparently have a definitive answer to the question below.....

Does the SEC's new 18-month time frame for shells start after the September 28 deadline, or is that 18-month time frame applied retroactively?

Based on guidance/statements that OTC Markets has made regarding this issue, investors/custodians/companies have been working under the belief that any shell that is current in its filing/profile obligations will be allowed quotations for 18 months after the September deadline. This guidance apparently is based on OTC Markets understanding of the rule and its conversations with the SEC. However, apparently OTC Markets still doesn't actually have confirmation yet from the SEC that its guidance is actually going to be accurate.

This Securities Lawyer 101 blog below (scroll down to the section on shell companies) makes a pretty good point of this. It is entirely possible that the SEC intended this amendment to be applied retroactively. Shells could be completely current/updated in all their reporting obligations to OTC Markets, but it wouldn't make any difference. They would immediately lose their quotations after the September deadline because they have already been shells for 18 months.

Normally I might be willing to place my trust that OTC Markets guidance based on its "conversations" with the SEC might turn out to be accurate. But given how OTC Markets' "conversations" with the SEC regarding the whole Expert Market thing didn't exactly turn out well, I think there are some legitimate reasons to have some concerns here.......

There is some confusion about the correct interpretation of “initial publication or submission of a priced bid or offer quotation for the security in an IDQS.” It seems to us it ought to mean that an OTC shell company would, like a SPAC, be able to qualify as compliant with Rule 15c2-11 only if it was new to the market. It would then have 18 months in which to find a buyer.

At the OTC Markets webinar, Zinn explained:

The way that it works is that for a new company coming on, after September 28th, that is a shell company within the definition of the rule, which includes those that disclose their shell status in their filings, those companies, starting from the point where they’re initially quoted, so that first day when they join the market and a broker-dealer has a priced bid or an ask in the security, they will be able to be quoted for an 18-month period after that.

But he added: “Any company that’s a shell as of September 28th has 18 months from that date to be the subject of a public quote if it remains a shell.” He may be confused by the SEC’s intentions because he finished by saying, “We are obviously constantly talking to the SEC about the application of this rule. This is our understanding based on those conversations, but we’ll also continue to push them to put out more specific guidance…”

https://www.securitieslawyer101.com/2021/what-you-need-to-know-as-the-september-28-amended-rule-15c2-11-date-approaches/