OTCQX Rules Release Number 11

The OTC Markets group recently implemented several amendments regarding the initial qualification process for the OTCQX that became effective June 13, 2016. These rules will affect companies who are performing an IPO while attempting to join OTCQX. These amendments also apply to companies that have not had a prior public market or a Form 211 cleared by FINRA.

The first amendment states that companies meeting the $5 bid price test using unaudited, interim financials will now be allowed to meet OTCQX standards.

The second amendment introduces a phase-in period for companies to start complying with the OTCQX Corporate Governance requirements; however, this is only applicable for US companies.

Updated OTCQX Tier Initial Eligibility Criteria for U.S. Companies:

In order to be admitted to the OTCQX U.S. Tier, a Company must meet at least one of the following exemptions:

  • If the company has been operating for a least three years they must have net tangible assets of $2,000,000
  • If the company has been operating for less than three years they must have net tangible assets of $5,000,000
  • Have a minimum average revenue of $6,000,000 for the past three years; or
  • Have a bid price of $5 per share on each of the 30 days following the Company’s Application Day.

The company must also meet at least one of the following criteria at the end of their most recent fiscal year:

  • $500,000 net income
  • $1,000,000 net tangible assets
  • $2,000,0000 revenues
  • $5,000,000 total assets

The company must have at least one Market Maker publish proprietary priced quotations in OTC Links ATS.

The company must have a $0.25 minimum bid price per share on each of the 30 days following the Company’s Application Day unless:

  • The company’s securities have had no prior public market in the US and FINRA has approved a Form 211 with the previously mentioned bid price.
  • The company is immediately applying for OTCQX admission after delisting from a national securities exchange with a minimum bid price of $0.10.

If any of the above conditions are met, the company may apply for an exemption from OTC Markets Group minimum bid price of $0.25.

The company must have a minimum Market Capitalization of $10 on each of the 30 days following the Company’s Application Day.

The company cannot be a shell or blank-check company; or subject to any bankruptcy.

The company must have 50 shareholders who each own at least 100 shares.

The company must have an audited balance sheets from the past two fiscal years.

Corporate Governance Eligibility (U.S. Companies only)

Any company that is applying in connection with their IPO and a Form 211 filed with FINRA is now eligible for a phase in period for compliance to the Corporate Governance rules. The Corporate Governance rules establish the following criteria:

  • At least one member from the Board of Directors and Audit Committee must fulfill the independence requirement when applying to OTCQX.
  • Within 90 days of beginning trading on OTCQX at least two members of the Board of the Directors and the majority of the Audit Committee members must satisfy the independence requirement.

These amendments are intended to better accommodate companies completing an IPO and who have no prior trading history.

These will be implemented June 13, 2016 and a complete list of changes for U.S. Banks and International Companies can be found on the OTC website.

Published: July 27, 2016

Author: Shelby Wayment

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