OTCQX Drops DTC Requirement, Adopts Sponsor and Disclosure Rules


On February 13, 2014, OTC Markets Group published proposed amendments to the OTCQX Rules for U.S. Companies and OTCQX Rules for International Companies. The OTCQX marketplace is the premier tier of the U.S. over-the-counter markets operated by OTC Markets Group and is a preferred alternative to trading on the U.S. OTCBB.

One of the most significant changes is the closer alignment of the roles of the Designated Advisor for Disclosure (the “DAD”) for U.S. companies and the Principal American Liaison (the “PAL”) for international companies. The OTCQX Rules require that every issuer be sponsored by either a DAD or a PAL, which are approved third-party investment banks or law firms.

Another change is the adoption of comprehensive guidance for U.S. companies with respect to the content and timing of news releases about material developments. Among other things, U.S. companies will be required to release both favorable and unfavorable news in a timely manner and ensure that news is handled in proper perspective. U.S. companies will be able release this news through the OTC Disclosure & News Service (“DNS”) or through a third-party newswire service that is integrated with DNS.

International companies that are not subject to reporting obligations with the Securities and Exchange Commission will now also have available to them additional channels through which they will be able to release news with respect to their ongoing disclosure obligations. In addition to being able to make news releases through DNS, these companies will now also be able to make this disclosure through a third-party newswire service that is integrated with DNS.

Additionally, securities of both U.S. and international companies will no longer be required to be eligible for deposit with the Depositary Trust Company (the “DTC”). DTC provides trade settlement and securities depository services. This rule change, however, will not affect Canadian companies that are listed on the OTCQX, as Canadian companies have been exempted from the DTC eligibility requirement since 2008.

Finally, OTC Markets Group is publishing a new set of rules called OTCQX Rules for U.S. Banks. These rules have been established for a new OTCQX Banks marketplace which will launch in the spring of 2014. Banks that qualify under the new OTCQX Rules for U.S. Banks will be included in the OTCQX U.S. Premier tier on market data feeds and on OTC Markets websites.

The proposed rules are scheduled to become effective March 17, 2014, with the exception of the proposed rule requiring OTCQX U.S. companies to make timely disclosure of material news releases/developments in a press release, which will become effective on May 17, 2014.

The current and proposed rules can be found at: http://www.otcqx.com/qx/int/rules.

If you have questions about the upcoming rules, contact any member of Clark Wilson’s Corporate Finance & Securities Group.