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Replies to post #2684 on WaterPure International Inc (WPUR)
Over the past 30 years, the OTC Markets has changed enormously. Once it was an obscure corner of the larger equity marketplace. But with the dawn of the Internet age and the rise of online discount brokerages, information about penny stocks that in the past could only be obtained by telephoning a broker or by subscribing to the daily “Pink Sheets”—so called because they were printed on pink paper—became available to anyone who owned a computer hooked up to the Worldwide Web. At the same time, the heady bull market driven by skyrocketing dot.com companies brought millions of new investors to the markets generally. Vastly lower commissions charged by the discount brokers made frequent trading practical for people who fancied themselves “players,” and opened the penny market to the general public.
It also opened the door to increased fraud and securities manipulation. Penny stocks had never really been considered investment grade, precisely because of the lack of information available about most of them. There was a general expectation that those trading on FINRA’s OTCBB (“over-the-counter-bulletin-board”) platform should be SEC registrants that made periodic filings as required by the Securities Exchange Act of 1934 (the “Exchange Act”), but a great many did not do so. In 1999, the SEC demanded that all OTCBB companies meet the reporting requirements of the Act, or be booted to the lowly Pink Sheets. Perhaps the Commission believed its new rule would have a salutary effect on non-filers, and they’d rush to comply. If so, it was sadly disappointed. A great many issuers unable or unwilling to hire securities attorneys or auditors became Pink. The National Quotation Bureau, which published the Pink Sheets, had recently been purchased by a group of investors who eventually changed the name of their new enterprise to the OTC Markets Group. One of the first things they did was launch an electronic trading platform called Pink Link (now OTC Link). Pink Link was much faster than the OTCBB’s platform, which offered execution by telephone only. Better yet, it didn’t charge a fee to market makers. Within less than 15 years, the OTCBB was effectively dead, and OTC Link was the only game in town.
As the OTC Markets grew, it developed a variety of services for issuers. For a fee, they could post press releases and financial disclosures on its Disclosure and News Service. It tried to encourage transparency by creating a series of “tiers,” distinguishing companies that offered little or no information about themselves from those that made extensive disclosures as non-registrants, filed with the SEC, or produced audited financial statements without becoming SEC filers.
Despite these very fundamental changes to the OTC marketplace, Rule 15c2-11 never changed. The SEC saw a number of problems with that. One was burgeoning microcap fraud, or at least negligence. Of the stocks suspended by the agency’s Enforcement Division, nearly all were delinquent filers, outright scams, or companies that had been promoted in pump and dump operations. All that was in part made possible by Rule 15c2-11. Once a sponsoring market maker’s Form 211 for an issuer was processed by FINRA, and other market makers piggybacked on it, it might continue to trade with published quotations literally forever, even if the company itself had long since ceased to exist.
11/06/20 12:21 PM
12/08/20 10:30 AM
