A new informational website is up and running on the new market, the BBX or Bulletin Board Exchange. Since in just over half a year the BBX will be a reality, it's probably a good idea for traders and investors to be familiar with the rules. At first reading, the new exchange rules seem to be a nice change to the current state of affairs in the OTCBB. As always though, we should take a closer look at the implications the new rules will have on day to day trading and investing. OTCFilings.com will continue to update readers as more information becomes available.
First and foremost in the new rules are the listing requirements. For BBX listing, companies must meet qualitative listing standards without having to meet financial or minimum share price standards. The Bulletin Board Exchange states that the listing requirements "have been created to provide an opportunity for the largest number of current OTCBB issuers to continue trading in the new listed environment, while at the same time offering a full complement of qualitative standards to provide enhanced protection to investors."
The Public Interest Standard means the BBX will have "discretion to deny listing or delist an issuer to protect investors and the integrity of the BBX market in the context of both initial and continued inclusion. Imposition of this standard would consist of, among others, a review of all directors, officers and major shareholders for past regulatory or legal issues." This standard will be interesting to see implemented. Will OTCBB companies with previous SEC trade halts have a more difficult time passing the test? What about some of the habitual reverse split followed by dilution issuers? Should be interesting to see how some of the more famous or infamous OTCBB personalities will fare.
The Public Float/Shareholder requirement should be fairly simple to pass. BBX listing will require a minimum of 100 round lot shareholders and a 200,000-share public float.
The Corporate Governance Standards, according to the BBX "are basic and attainable by all current OTC Bulletin Board ® (OTCBB) issuers." The Standards include: Annual Shareholder Meetings, Proxy Solicitations and Quorum, Independent Director, issuers will have up to 12 months after the introduction to retain the independent director. Audit Committees/Conflicts of Interest, issuers will have 12 months to create an audit committee; in addition the committee will review related party transactions. It is possible this may curtail some of the more questionable practices by some of the OTCBB issuers. Voting Rights: "Nasdaq rules prohibit the disenfranchisement of the voting rights of existing shareholders. This requirement will be established immediately upon launch of the BBX." Auditor Peer Review: "All issuers must engage auditors that are subject to peer review consistent with the American Institute of Certified Public Accountants (AICPA)procedures." Shareholder Approval: shareholder approval will be required for approval of certain transactions, including the granting of stock options to officers or directors, large below market issuance of stock and acquisitions and changes in control. This will prove very interesting for many OTCBB companies that survive by the S-8 filing. Although shareholder approval will be needed to vote on such transactions many times officers hold well over 50% of the voting stock, there probably will not be much change. Distribution of Annual Reports, Availability of Quarterly Reports.
In addition, companies listing on the BBX will encounter initial listing fees and annual fees along with fees for listing additional shares and convertible debentures. The fees are as follows: Initial Listing Fee: "$5000 for the first class of securities listed. A non-refundable application fee of $1,000 is required. A fee of $1,000 will be charged for each additional class of shares based on the greater of $1,000 or .001/share not to exceed $5,000. Convertible debentures will be charged a fee of the greater of $1,000 or $50 per million dollars face value of debentures not to exceed $5,000. Annual Fee: $4000 for the first class of securities and $1000 for each additional class of securities. Listing of Additional Shares (LAS) Fees: "$0.005 per share, up to a maximum of $8,750 per quarter and $17,500 annually. This is one half of the SmallCap maximums. No fee is assessed if the value of the LAS offering is under $500." Hearing Fee: $4000 for written hearings; $5000 for oral hearings. The listing fees should not be a problem for most companies currently trading on the OTCBB. In fact the BBX will help companies by waiving the initial listing fee for applicants until 6 months after the launch, in early 2003. Check OTCFilings.com for a previous commentary with an OTCBB company regarding the listing standards and fees.
Now on to the Market Rules. The BBX explains that market rules for the new exchange will more closely resemble the Nasdaq rules. The first rule is "market makers will be required to maintain continuous, two-sided markets, with quotes that are reasonably related to the market and that generally do not lock or cross the market." Excellent idea, in most cases this will prove to be a benefit for investors and traders. The second rule is "BBX market makers will be required to report their short interest on a monthly basis, as market makers in Nasdaq National Market ® (NNM®) and SmallCap stocks do today." This is interesting and transparency is always good although many hearts will be broken when investors realize their gem of a stock was not shorted 20 times the float after all. The final market rule states "the BBX proposes to adopt the same trade halt rule that currently applies to NNM and SmallCap issues. This provides BBX with broader authority consistent with its new relationship with BBX issuers." This last rule is unfortunately a problem for traders that have enjoyed jumping in for a fast ride on buyout or other market moving news. This third rule may be interpreted as halting a stock pending a news release as is done on Nasdaq currently. Therefore on a buyout the rule may allow the market makers to gap the price to the buyout offer before the stock reopens, leaving the traders out of the game.
Some rules will remain the same. Such as the minimum quote size depending on the quoted price of an issuer and 100% maintenance margin requirement. Doesn't look like we will be able to margin that $.001 stock unfortunately.
BBX Automated Trading Systems will prove to be the biggest change traders will have to learn to master. The BBX states "The proposed automated order delivery service (ODS) will enable BBX users to communicate electronically with one another to negotiate and confirm the execution of non-liability orders. It will offer much of the functionality of the SelectNet® service that is used for trading of Nasdaq National Market and SmallCap issues." Trading will probably be closer to the current NASDAQ penny stocks than the current OTCBB stocks. For traders not familiar with a NASDAQ environment, there is 7 months of practice time.
Nasdaq and NASD Regulation will maintain a high level of regulation over the BBX. The automated trading systems should allow for a closer surveillance of the BBX marketplace. Regulation will monitor for: Issuer news that warrants a news-related Trade Halt, Backing away, Excused withdrawals from the market, locked/crossed markets and trading during trading halts, Best execution obligations, Marking-the-close activity, Anti-competitive practices by market makers, Front-running of research, Short interest reporting and Insider trading. So in short, it looks like they will be monitoring for the daily occurrences in the OTCBB.
Things change and just when we were getting used to our little OTCBB. The BBX will be here shortly and the changes will undoubtedly bring opportunities for some and misery for others. The one positive out of all these changes is the possible influx of new money into the BBX, money that had previously shunned the OTCBB due to the lack of regulation and investor protection. Many will also welcome the automated trading, but that will come at a price. The 30 minute 200% runs in share prices may be the casualties. The trading halts pending news may cost many participants the "buy out play", a favorite among the fast and nimble traders. The BBX is coming, keep checking with OTCFilings.com to keep up with the latest developments.
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