2. 2
Our Mission: To create better informed and
more efficient financial marketplaces
OTC Markets Group Inc. (OTCQX:OTCM)
3. 3
Global Leader in Exchange Graduations
Market 2014 Graduates to Main Boards
OTCQX, OTCQB and OTC Pink - US 83
TSX Venture - Canada 22
LSE AIM Market - UK 5
4. 4
Small Companies Need Liquidity
Cumulative Average Order Book by Market Capitalization
Source: SEC.gov
5. 5
Individuals Own Small Companies
Percentage Ownership of Exchange-Listed Companies
Market Cap (millions) Median Institutional
Ownership
Median Individual
Ownership
$0-50 10.9% 89.1%
$51-100 19.9% 80.1%
$101-250 31.3% 68.7%
$251-500 43.7% 56.3%
$501-1000 62.4% 37.6%
$1001+ 83.5% 16.5%
Source: SEC.gov
7. 7
Retail Investor
Orders ♥ Market Maker
Trade Quality
“Like malls losing shoppers to nearby
Costcos, exchanges lost out to
market makers in the competition for
retail market orders.” Barron’s
9. 9
Enable Electronic Interstate Commerce
http://www.sec.gov/news/testimony/testimo
ny-venture-exchanges.html#_ftn2
Electronic Venture Markets need national standards for:
• Reg A+ Tier 2 Offerings Blue Sky Preemption
• All fully SEC registered offerings
• Secondary transactions in SEC reporting companies
• Secondary transactions through broker-dealers
• Registration of electronic broker-dealers
Unify markets with uniform securities regulations
10. 10
Unleash Venture Companies
• Finish JOBS Act Crowdfunding Rules
• Establish a path for companies to provide current
information electronically
• Modernize the “Penny Stock” Definition
• Improve Internet Promoter Disclosure
• Remove complexity and cost
12. 12
Steps to Investor Liquidity & Growth
Broker-Dealers
Alternative Trading Systems
Exchanges
Editor's Notes
Our Mission:
To create better informed and more efficient financial marketplaces
Who We Are:
OTC Markets Group Inc. (OTCQX: OTCM) operates the OTCQX® Best, OTCQB® Venture and OTC Pink® Open Marketplaces for 10,000 U.S. and global securities
Our OTC Link® ATS is an SEC Registered/FINRA Member Alternative Trading System that directly links a diverse network of broker-dealers providing liquidity and trade execution services
In the past five years, more than 400 companies have graduated from our marketplaces to a U.S. exchange listing
“On average, the smallest capitalization stocks have much less displayed size at all levels of the order book when compared to larger capitalization stocks.”
“A Characterization of Market Quality for Small Capitalization US Equities,” Charles Colliver, SEC, September 2014 http://www.sec.gov/marketstructure/research/small_cap_liquidity.pdf
The smaller the company, the lower the level of ownership by institutional investors.”
Senate Testimony on “Venture Exchanges and Small-Cap Companies”
Stephen Luparello, Director, Division of Trading and Markets, March 10, 2015
http://www.sec.gov/news/testimony/testimony-venture-exchanges.html#_ftn2
“The Best Online Brokers of 2014,” Barron’s, March 15, 2014
http://online.barrons.com/articles/SB50001424053111904628504579433251867361162
Retail Investor Orders Love Market maker trade quality, and cost and service
Market Makers Provide Liquidity
“Like malls losing shoppers to nearby Costcos, exchanges lost out to market makers in the competition for retail market orders.”
“The Little Guy Wins! - Forget Flash Boys - small investors actually get good stock prices from brokers like Fidelity and Market Makers like Citadel,” Barron's, March 2, 2015
http://online.barrons.com/articles/SB51367578116875004693704580480163105061670
SEC Registered Alternative Trading Systems (ATSs) are a natural platform for innovation in creating markets for SME and venture company shares
ATSs are regulated by FINRA and registered with the SEC
ATS licenses and registration are more efficient to operate and allow for greater innovation than exchange licenses
In Europe, the LSE AIM Market, NASDAQ First North and other venture and SME markets operate as Multilateral Trading Facilities (MTFs) - Europe’s version of the ATS
U.S. ATSs are creating innovation in trading public and private venture companies
Broker-dealers, ATSs and exchanges should compete equally to provide secondary trading for small companies so that consumers can choose the most appropriate model for their needs. The solution should be on a national level, and should not be limited to an exchange model.
We need a federally regulated disclosure regime that provides exemptions from state Blue Sky laws
Blue Sky Preemption for Reg A+ Tier 2 Offerings Blue Sky Preemption DONE
Blue Sky Preemption for all SEC registered offerings to Qualified Purchasers
Blue Sky Preemption for Secondary Trading for:
Secondary transactions in SEC registered and reporting companies, including Tier 2 of Regulation A+
Secondary transactions in securities through an SEC registered broker-dealer, if adequate current information is available to investors
Electronic broker-dealers that are SEC registered and FINRA regulated
We cannot succeed with 50+ state Blue Sky regimes
Enable Small / Growth / Entrepreneurial & Early Stage companies to efficiently access capital by removing restrictions and increasing transparency to attract self-directed individual investors & smaller institutions
Finish JOBS Act Crowdfunding Rules
Establish a path to provide adequate current information for compliance with Rule 144 and exemption from state Blue Sky
Modernize the “Penny Stock” Definition - the definition of a Penny Stock under Securities Act Rule 3a51-1 should be updated to account for:
SEC registered capital raises, including Regulation A offerings over $5 million, and
The effect of bona fide research and development costs on Net Tangible Assets for firms in R&D heavy industries, such as biotechnology
Improve Promoter Disclosure For Investors:
Revise Securities Act Section 17(b) to require disclosure of and contact information for the promoter and the person(s) or entity paying the consideration
In the case where the promoter or paying party is an entity, the required disclosure must include the name(s) of the person(s) controlling such entity
Remove complexity and cost
We need small brokers, investment bankers & market makers to support small companies in the capital markets
Support small brokers and market makers to provide efficient executions and liquidity to investors
Improve point of sale disclosure so investors can make better informed decisions
Update Reg SHO so Bona Fide Market Makers can provide two-sided liquidity
Improve the on-ramp for OTC Trading by allowing investment bankers to be paid to file Form 211 with FINRA to take companies public
Expand Margin Eligibility
Small company securities meeting certain qualitative thresholds of a “Ready Market” should be margin eligible
The Federal Reserve formerly published an OTC Margin List, but ceased the practice when the NASDAQ stock market became a national securities exchange. The Fed should begin publishing the OTC Margin List to help support venture companies.
Enable technology and transparency
Lets build a better staircase using technology and transparency.
Companies can improve Trading, Transparency and Trust with each step up in Compliance, Complexity and Cost
A electronic venture market wants
A federally regulated disclosure regime that provides national exemptions from state Blue Sky laws
To let user choice define market structure - Broker Trades / Intermittent Auctions / Market Maker Networks / Centralized Exchange Matching Engines
Inclusion of all stock trading business models - Broker-Dealer / ATS / Exchange
A system of Transparency / Compliance / Governance that grows with a company
Information and standards for active stock pickers, not passive index investors
Point of Sale Disclosure and risk controls to handle Speculative securities
The removal of unnecessary cost & complexity