Imaging Diagnostic Systems (fka IMDS)

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Read this , old article but like today many companies moving to OTCQB from OTCBB

http://friedlandcapital.wordpress.com/2012/04/28/is-finra-implementing-a-strategy-to-kill-off-the-otc-bulletin-board/

Is FINRA Implementing a Strategy to Kill Off the OTC Bulletin Board?
Posted on April 28, 2012 by Friedland Global Capital

It’s no secret that the OTC Bulletin Board has been steadily losing trading volume over the past few years, but we couldn’t help to wonder why? In fact, there seems to be a concerted effort by FINRA to kill off the OTC BB. One has to wonder if it will even exist six months or a year from now.

The OTC Bulletin Board began operating on a pilot basis in 1990, when the Securities and Exchange Commission (SEC) asked the National Association of Securities Dealers or NASD, which also operated NASDAQ to create and manage an “over the counter” based platform market as part of the market structure reforms mandated by the Penny Stock Reform Act. Initially, OTC BB companies were not required to report any financial information with the SEC. Then, in January 1999 the SEC allowed NASDAQ to require that all companies whose shares traded on the OTC Bulletin Board be reporting companies under the Securities Exchange Act of 1934. This was implemented to provide greater transparency for investors in over-the-counter securities, and enabled investors to access smaller public companies’ financial data at the SEC’s EDGAR online database, the same way they could access information for large companies such as General Electric or IBM.

The OTC Bulletin Board was an attractive alternative to the Pink Sheets (more on that later) for public companies not ready for one of the exchanges (NASDAQ, AMEX or NYSE) but still looking to establish a “real” market for their securities, and at one time, the OTC BB accounted for 100% of all over-the-counter transactions for securities that were traded on the OTC BB.

This did not last for long, however, primarily because the OTC BB operating model was not upgraded to keep up with the changes in the financial marketplace; specifically the paradigm shift from a paper-based trading system to an open electronic platform. According to its website, the OTC Bulletin Board is a “quotation medium for subscribing members, not an issuer listing service”. Thus in order to buy or sell the stock of a company that is quoted solely on the OTC BB, market makers on each side of the transaction must speak to each other directly, by phone, in order to execute a trade, and individual investors have no ability to access OTC BB data.

The alternative market for over-the-counter companies is OTC Markets — formerly the Pink Sheets. OTC Markets was started by the National Quotation Bureau, or NQB, which developed a system to facilitate trading in over-the-counter equities. Each day NQB would gather stock quotes from market makers for these securities, which were then printed on long sheets of pink paper, the “Pink Sheets”–and circulated the next morning to market-makers. These “Pink Sheet” companies were typically extremely small and illiquid with very limited public float. And while there was substantial opportunity for financial reward, most pink sheet companies did not prepare audited financial statements, provide any disclosure or financial reporting to the SEC, nor make any real public disclosures, making it very difficult for investors to find reliable, unbiased information about those companies. It was for these reasons that companies whose shares traded on the Pink Sheets were often considered extremely risky for investment.

That being said, the “Pink Sheets” paper system endured for decades. In 1997 the NQB was purchased by a new owner whose objective was to migrate the pink sheets to an electronic quotation and trading platform. With this well underway, in 2000 the name was changed to Pink Sheets LLC, and then Pink OTC, in an effort to capitalize on the name recognition. It eventually became clear that there was still a negative association to the Pink Sheets name, so in November 2010, Pink OTC again changed its name to OTC Markets Group.

Despite the hiccough with its name, today, OTC Markets is essentially “the” electronic quotation system for all OTC securities. The open, electronic trading platform services more than 160 broker-dealers and trades more than 10,000 securities in a three-tiered market. The OTC QX is the highest tier of the OTC Markets, and companies are required to have current disclosure and meet minimum financial and disclosure requirements. Securities in the OTC QB tier must be SEC reporting companies and must be current in their SEC filings, and securities in the OTC Pink market tier are further divided, based on the amount and timeliness of their financial disclosure. Investors can directly buy and sell stocks listed on any of the OTC Markets tiers through traditional and online brokerage accounts.

OTC Markets’ business model is far more attractive to both professional and individual investors than the OTC BB, and for these reasons, most companies whose shares trade on the OTC BB are also quoted via OTC Market’s electronic quotation system “LINK”, with the vast majority of trades for OTC BB companies actually being executed on the OTC Markets “LINK” platform.

The OTC Bulletin Board hit an all-time high average daily shares trading of 2.5 billion and 222 market makers in 2006. That number was down to 807 million average daily shares traded and 106 market makers in 2011. Some of this can surely be attributed to an overall decline in market activity and the global financial crisis, but it turns out that a lot of the drop off is a result of companies and (market makers) leaving the OTC Bulletin Board – some by choice, and others being forcibly removed by FINRA.

Adding to the general market pressure, in 2007 the National Association of Securities Dealers (NASD) spun off NASDAQ. The NASD then joined forces with the regulatory arm of the New York Stock Exchange to form the Financial Industry Regulatory Authority, or as it’s commonly known by its initials, FINRA. But, Nasdaq wanted no part of the OTC BB, and it was left under the stewardship and control of FINRA. Soon thereafter, recognizing that managing a trading platform for over the counter securities wasn’t consistent with their role as “the largest independent regulator for all securities firms doing business in the United States” FINRA announced that it intended to sell the OTC Bulletin Board so it could focus on being a regulator. Unfortunately, FINRA’s attempts to sell or unload the OTC BB have been fruitless, effectively orphaning the capitalist-based trading facility within a regulatory organization.

The OTC Bulletin Board’s decline in trading accelerated about eighteen months ago when FINRA began proactively eliminating public companies from the OTC BB trading platform. (In reality, companies are not listed on the OTC BB as it’s not an exchange, but a trading facility, so essentially FINRA kicked the companies off the “trading facility”.) Since that time, more than 1000 companies have met the same fate, typically with no contact, let alone warning from FINRA.

At first blush, it seemed that FINRA was acting responsibly in light of frauds and other reckless behavior being perpetrated on investors, getting rid of companies that were no longer eligible for trading on the OTC BB. But at closer examination, one has to question FINRA’s motives. One can only come to the conclusion that FINRA is trying to make the OTC BB “go away.”

Generally, companies were delisted for one of two reasons; failure to comply with the 1934 Act and failure to comply with SEC Rule 15c2-11. This may seem rather serious, but in reality it looks like FINRA has been acting in its own interests, rather than considering the intent of the laws – a regulatory loophole if you will.

Rule 15c2-11 was created to allow non-reporting public company’s securities to be quoted on the OTC BB by filing some simple disclosures and submitting an application to FINRA. Once a company has been approved, market makers can post their bids and asks on the OTC Bulletin Board. Delisting for “failure to comply with Rule 15c2-11” is enacted by FINRA when a company does not have a live quote on the OTC Bulletin Board from a market maker for 4 consecutive days. When this happens, the issuer is removed from the OTC Bulletin Board system, and all trading activity is moved from the fee-based OTC BB to the free OTC Markets platform.

This may seem reasonable, however remember that the OTC Bulletin Board is only a quotation medium for subscribing broker-dealer members; FINRA imposes a “membership” fee for OTCBB market makers of $6.00 per month for each security quoted. For market makers making a market in hundreds of securities per month, these costs can quickly become prohibitive. On the other hand, OTC Markets does not charge a participation fee, and trades can be executed directly through its trading platform, electronically. This has caused the departure of a number of major firms as market makers from the OTC Bulletin Board, including Knight, E*Trade, Citi and StockCross, and made it increasingly difficult for many public companies to maintain a live quote on the OTC BB.

Delisting for Failure to comply with the Securities Exchange Act of 1934 relates to FINRA’s Rule 6530 and the SEC rules as to whether or not an issuer is required to file reports pursuant to Section 13 or 15(d) of the Act.

FINRA’s logic behind this is particularly baffling. As required by the Act, once a company reaches 300 shareholders it is required to file quarterly financial reports. If a company has less than 300 shareholders, reporting is voluntary, however FINRA has taken to delisting companies with under 300 shareholders who elected to be reporting companies. Yes, FINRA is denying listing to smaller companies that are electing to provide the marketplace with information. Somewhat counterintuitive to their stated objective “to protect America’s investors by making sure the securities industry operates fairly and honestly”.

One would assume that the ceasing of the trading of a company’s shares on the OTC BB would come with a lot of negative press, but in most if not all of these cases there was little to no fanfare, nor disruption in the trading of any of their securities; there was no change in the companies’ performance, investment quality or SEC reporting status. The reality is that for the vast majority of the companies kicked off the OTC BB trading has continued seamlessly on OTC Markets.

One glitch that OTC Markets has yet to work out is that not all financial websites and data feeds have been updated to reflect OTC Markets three tier system. Highly-trafficked websites such as Yahoo Finance and StockCharts.com show most, if not all OTC QB and OTC QX companies under the “Pink Sheets” tag, or .PK, which still carries a negative stigma. Today, the generic nature of the “Pink Sheets” term is no longer an accurate reflection of the given companies status with regards to their being “reporting companies” under the Securities Exchange Act of 1934. But, the proper designation for companies can be found at the OTC Markets site, and according to a spokesperson at OTC Markets, the company is working diligently to resolve this data feed issue.

Today, there are just over 10,000 equity securities that are quoted on OTC Markets; 77% are quoted exclusively on OTC Markets’ OTC Link while only 14 companies (0.1% of all OTC companies) are quoted exclusively on the OTC Bulletin Board. The remainder are dually-quoted on both systems.

The ease and efficiency of trading on the OTC Markets system has removed much of the cache that has been associated with an OTC BB listing. This, in conjunction with the OTC Bulletin Board’s seeming disregard for its membership and companies traded on the OTC BB, are the driving factors behind the continual shift of trading activity to OTC Markets.

All of this leads us to believe that FINRA has intentionally made the decision to kill off the OTC Bulletin Board.