It is important to understand that the officers and directors of public companies are responsible for company disclosure and providing accurate and complete investor disclosure.
Ensuring that investors have access to material information so they can make informed investment decisions is critical to efficient market pricing and a cornerstone of federal and state securities laws.
One of our roles at OTC Markets Group is to provide a tailored platform for companies to demonstrate compliance with U.S. securities regulations and assure their company disclosure is publicly available.To accomplish this objective, we consolidate disclosure filed with the SEC, banking regulators and non-U.S. exchanges. For companies that do not provide ongoing disclosure through a securities regulator, we offer the Alternative Reporting Standard (ARS). It provides a disclosure framework and a service that allows companies to publish their reports directly with OTC Markets to make information available to the market in a direct and consistent manner.
Our website,www.otcmarkets.com,providesinvestorswitha baselineof information for all companies that tradeonour markets, providing the ability forinvestorstomake informed decisions when theyevaluate non-SEC reporting companies alongsidecompanies that followother reporting standards.
We encourage investors to analyze company disclosures, check other information sources and do their own due diligence in researching companies and the people involved before making any investment. Because documents published under the Alternative Reporting Standards are available for all to see, investors often have questions regarding how the information disclosed affects a company’s tier designation.
Below is an overview of our procedures and some of the common reasonswhyreports published on our platform do not qualify a company to move up to the Pink Limited or Pink Current Information tiers – even when a company has filed a recent financial report. It is our policy to only communicate with issuers and their securities counselregardingtheir specific disclosure materials.
TheDisclosureProcess
For broker-dealers topubliclypublish theirpricequotations, a public company must fully providebasic investor informationperSEC Rule 15c2-11 and our ARS disclosure guidelines. In our role as a Qualified Interdealer Quotation System, we monitor ongoing company disclosure and identify for broker-dealers which securitieshavemadetherequired information publicly available.
Simply publishing a report does not automatically result in a tier/status change for a given security. Rather, once a report is published, an analyst will first process it to confirm the availability of information required under SEC Rule 15c2-11 standards. For companies utilizing the Alternative Reporting Standard, we confirm that the requirements of the Pink Basic Disclosure Guidelinesfor the Current Information and Limited Information tiersare met.
When our analysts identify incomplete company disclosure, errors, or inconsistencies within company disclosures, we notify the company and work with them to submit the amended disclosures.
OTC Markets does not conductmerit reviews.Our automated processes and analystprocedures are designedto monitorthat abaseline of requiredinformation ispubliclyavailablein a consistent format.Importantly,companiesthat do not wish to undertake this process toqualify for thePink Current or Pink Limited designationunder the Alternative Reporting Standardalways have the option toregistertheir securities and becomeSEC Reporting, or have their securities quoted on the Expert Market.
For reference, more information about this processcan be foundhere.
Incomplete Disclosure
With over 11,000 companies trading on our markets–the details matter.One of the most common issueswe see isincomplete information. Investors shouldlookatwhether thecompanyhaspostedall the required information in theirDisclosure Statement. We include a fillable form on our website to help guide companies through thisprocess.
Common examplesinclude not publishing thenames ofbeneficial owners,controlling corporate shareholders,or convertible noteholders.Companies often overlook this requirement, yet thislevel ofdetail is an essential part of understanding who hasacontrolling interest in the company.
OTC Markets also frequently identifiesincompleteshare issuancehistoryandfailure to report all convertible notes issued or outstanding during the required period.This information is important for an investor, asisincludinga change in a security’s total shares outstandingandunderstandingpotential dilutionrisks.
Mislabeled Informationand Inconsistencies
Quite often, we receive reports that are labeled incorrectly (e.g., “Management Discussion” instead of “Quarterly Report”). Or, when uploading, a company might publish a report with an incorrect period end date that is inconsistent with the actual reporting period. While these may appear to be insignificant errors – we need the company to adjust the report – so that our systems can process it correctly and so that investors can find what they are looking for. Imagine how challenging it would be to analyze information on thousands of securities if everything was labeled differently.
Companiesarealsorequiredtolist the correct reporting periods on the title page. Investors should look for clearly labeled reportswith corresponding time periods that match. Ifthis information is missing or inaccurate,itcannot be properly displayed.
Incomplete FinancialReports
To meet the minimum information standards for Rule 15c2-11 and to qualify for Pink Limited or Pink Current, companies must publish financial statements for the Fiscal Year-End within the past 16 months. OTC Markets Group requires financial reports to be prepared according to U.S. GAAP or International Financial Reporting Standards (IFRS); they are not required to be audited.Financial Reports must include each of the following: Balance Sheet, Statement of Income, Statement of Cash Flows, Statement of Retained Earnings (Statement of Changes in Stockholders’ Equity), Notes to Financial Statements and an Audit Letter if the financials have been audited.
Companies will sometimespublishfinancialreports that are missingrequired financial statements,have missing orinadequate notes, or have significant errors (e.g., unbalanced Balance Sheet). These deficienciesmean that thesecurity will continue to trade on the Expert Marketorwill not qualify to move to Pink Current Informationtieruntil the issue is rectified.
The Attorney Letter
To qualify for the Current Information tier, companies must make the following information publicly available on a timely basis (90 days after fiscal year-end for Annual Reports; 45 days after each fiscal quarter end for Quarterly Reports).
- Financial Statements: Two most recent Annual Reports and any subsequent Quarterly Reports
- Disclosure Statement: Most recent AnnualReportand anysubsequent Quarterly Reports
- Audit opinion letter or anAttorney Letter covering allthe requirements of theAttorney Letter Guidelines (non-audited companies)
The Attorney Letter is an alternative to having audited annual financial statements. To remain in the Current Information tier, companies must post a new Attorney Letter within 120 days of their fiscal year-end.
The purpose of the Attorney Letter is to confirm that an attorney, who is permitted to practice before the SEC, has examined the company’s disclosure and determined that the information constitutes adequate current information and complies with the Guidelines. However, publishing an Attorney Letter does not guarantee that a company will move to the Current Information tier. Attorneys must follow a detailed set of guidelines when preparing these letters, and the letters are often not in accordance with those guidelines. We will work with the attorneys if they have questions about the guidelines, but it is ultimately their responsibility to review the content of the disclosures. There are certain legal and other service providers we have prohibited for not meeting their professional responsibilities. Access the list of Prohibited Service Providers.
If you are interested in learning more about our reporting standards,we encourage investors to visit theInformation for Pink Companiessection of our website. A summary ofmany of the frequently asked questions we receivecan also be foundinour15c2-11 Resource Center.
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