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Investors Be Alert—“Penny Stocks” Can also Trade on Exchanges

In my most recent blog post, Capital Raising During Times of Uncertainty—Issuers Beware!, I discussed the issues facing small and micro-cap companies as they confront critical funding issues and the heightened need to secure growth capital. The companies that do all the right things and provide quality disclosure deserve a public market that provides a mechanism for investment funding to keep their businesses going.  However, some may still fall victim to bad actors. We cautioned issuers to beware of “too good to be true” financings with terms that dump shares, dilute shareholder value and destroy companies.

While we focused on OTC-traded companies during these turbulent times, there are exchange-listed small and micro-cap companies facing the same challenges.  They too will be fighting for their survival and will find themselves doing whatever it takes to access funding and maintain their listings.

My latest piece touches on key points investors should research when looking for new opportunities and assessing risks for investing in publicly traded small and micro-cap companies.

Did you Know that Over 200 “Penny Stocks” are Listed on the Exchanges?

Because of recent market volatility and economic distress, there are currently over 200 exchange-listed companies that fall under the financial standards of minimum revenue, net tangible assets or stock price that define “Penny Stocks” under SEC Rules.  Investors often operate under the presumption that any company or fund that is publicly traded on a national exchange such as Nasdaq or NYSE is inherently a ‘safe’ investment and relatively free from risk.  Were it not for a National Securities Exchange listing exemption, which is predicated on companies meeting other listing standards, these securities would be subject to the Penny Stock resale restrictions. Our OTCQB Venture Market can play an important role in giving these companies a way to continue providing disclosure to investors as they address their current financial or economic challenges in a cost effective and time efficient manner.

The continuing listing standards that usually remove most penny stock-type securities from exchanges may soon no longer be in place.  In a recent filing with the SEC, Nasdaq proposed to grant companies whose shares have fallen below $1 an additional grace period to raise their stock prices before the threat of being de-listed, and to provide companies with market values that fall below Nasdaq’s required minimum pricing additional time to cure.  If approved, this will only increase the number of securities that would be considered penny stocks were it not for the fact that they are listed on an exchange.

From the standpoint of a market operator that provides established public markets for thousands of early stage and growth companies, we understand the funding challenges and the broader systemic issues small and micro-cap companies face. These companies have always had to work harder to secure growth capital.  In the wake of unprecedented economic uncertainty, and in this same vein, earlier this month, OTC Markets announced it was providing relief to the companies trading on our OTCQX and OTQCB Markets.  However, we are not relaxing our prohibition against penny stocks trading on our OTCQX market.

Small and Micro-cap Companies Face Similar Challenges When Trading on an Exchange

Many of the challenges that advisors deem to be most problematic for small and micro-cap issuers trading on OTC Markets are the same as those for companies trading on an exchange.  Private placements, convertible debt, toxic and death spiral financing unfortunately become all too familiar

“solutions” for smaller companies regardless of where they are traded.  These challenges and corresponding actions are exacerbated by the current Covid-19 pandemic and its effect on the health of companies given the global economy.

However, there is a far greater danger that exists to the investing public in allowing such struggling companies to retain their listing on an exchange.  Why is that?  Because investors may be unaware that  the cache and prestige of national exchange does not insulate the public from risk.  It is important to understand that it is not the markets job to remove risk, instead it is to fairly price a security based on investor perceptions of future value, risks, supply and demand.

Investors Always Need to Carefully Read Financial Disclosures and Conduct Background Research

The fact is, independent financial analysis is how investors make superior returns and generate long term profits trading small and micro-cap stocks, whether they are listed on a national exchange or on the OTC market.  Investors meeting in an efficient and transparent public market is what creates efficient pricing.   Blindly buying a security harms both investor returns and market efficiency.

Quite often, investors may be lulled into a false sense of security simply because a stock is traded on an exchange or is actively traded.   All markets need public and investor scrutiny to operate effectively.  Although companies,  ETFs or other complex financial instruments may be traded on a national exchange, investors need to operate with caution and conduct their own research to independently ascertain the opportunity and potential risk.

Investors should be aware

Small and micro-cap companies’ trading prices and volumes can be distorted by stock promotion.  Digital platforms, social media and online investment newsletters provide public companies and investor relations professionals more immediate access to engage with a broader universe of potential investors. In this technology-driven environment, anonymous market manipulators will offer seemingly independent commentary on investment research websites that may in fact be part of paid stock promotion.

Promotion, misinformation, or fake news can affect securities across all markets.  In the past year, dollar volume in promoted securities listed on a national exchange was $105 billion. Over the same period, promoted securities on the OTC market traded $547 million in dollar volume.[1]

From an investor protection standpoint, and often less understood by issuers and investors alike, is that companies that traditionally could not meet the Nasdaq $1.00 minimum standard would remain freely tradable even after being delisted.  Those companies would move to one of the markets operated by OTC Markets Group, where they would still be traded electronically by the same market makers who traded those securities on the exchange(s).  Investors would thus benefit from the same price discovery and trading experience.

What Happens if Companies are Delisted from an Exchange?

Our most recent comment letter to the SEC on Rule 15c2-11 includes our proposal that exchange delists should have a 90-day exemption under which they should be able to be quoted on our markets so that investors have continuity.  It would provide an easy-on, easy-off access point for those companies and their investors tailored to these specific situations.  Companies not able to publish current information in the 90-day grace period would move to an Expert Market for sophisticated investors.  This would  make for a softer landing spot for a lot of companies, including those that may find themselves struggling in a time of crisis.

If those same companies were to be delisted from an exchange, allowing them to then trade on OTC Markets, several things might occur:

1) They would be appropriately classified and identified as “penny-stocks” making it easier for investors to research and analyze risk 2) Investors would have access to the promotion tracking and risk flags that OTC Markets makes publicly available for the securities traded on our markets 3) Companies may find a more appropriate home on our markets, where they will not be subject to the higher fees and costs necessary to maintain an exchange listing  4) If a company chooses to do so, it can take some time to focus on its business versus worrying about meeting an artificial exchange standard.  Then, when the timing is appropriate, that same company can reapply to Nasdaq when ready.

Now more than ever, we are empathetic to these companies but also want to caution investors to do their own analysis when evaluating a company.  Investors need to look at the fundamentals of the company instead of focusing on where they are traded.  There are still red flags to look out for, regardless of the market on which a company chooses to trade.  Make sure you are looking to a source that requires specific disclosure.

Not all small cap and micro-caps are created equal, nor should they be perceived to be “Blue Chip” simply because they trade on a larger exchange.  Responsible investors should scrutinize every potential investment before they click buy, regardless of the market.  Most importantly, we encourage all investors to remain vigilant.  Market volatility creates many opportunities: smart investors win, and speculators lose.

[1] Based on dollar volume in securities while promoted between April 1, 2019 and March 31, 2020.

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Davos: A Glimpse Into The Global Innovation Economy, The World Economic Forum gives valuable insight into the trends of the next decade.

Each year, the World Economic Forum (WEF) meets in Davos, Switzerland to engage the most influential political, business, cultural and other society leaders to shape global agendas. At the WEF, there is the shared understanding that the themes discussed at the Forum are often more widely representative of broader social trends. This year, increased pressure from geopolitical and economic instability brought with it a greater commitment to the original intentions of the WEF: identify leaders who are making waves in the world economy today and encouraging the growth of emerging markets all over the world. All discussions resulted with one underlying theme: progress happens when people who have the drive and influence to make positive change come together.

This year, the forum was focused on themes we have seen burgeoning along every aspect of our global economy: highlighting inclusivity, an increasingly professional demeanor of emerging industries, and the focus on an international perspective. As I reflect on this year’s event, the WEF proved progress will come from a rapid shift in priorities and bold recognition of criticisms of failure to act enough upon the most pressing global concerns.

Focus on Inclusivity

The attitude at Davos 2020 marked a transition towards greater inclusivity and the possibility for solutions to stem from smaller companies — companies pushing the envelope and innovating on the edge. This year was a critical crossroads for innovation and global markets leadership, and many industries are up for the challenge. Attending and participating in Davos gives industry leaders the opportunity to share their ideas and debate their differences.

Diverse yet transparent markets increase and promote greater competition. They also fuel growth and yield innovation. Many in attendance promoted capital formation and helped foster smaller companies and entrepreneurs to become blossoming corporations and better corporate citizens. Innovative or emerging industries, such as cannabis, need to build a global community who support their cause, believe in the products they produce and encourage their growth — leading to greater economic opportunity.

In Davos, this community exists and industry acceptance, adoption and growth is achieved. We saw investors, entrepreneurs and government officials come together to have those difficult conversations and reach a mutual conclusion — global acceptance, adoption and growth requires all voices to be heard. When this happens, innovation can thrive, economies can benefit and change happens.

While in Davos, we were encouraged to hear chatter about alternative routes to the public markets and capital formation — via direct listings and crowdfunding. This venture mentality is what our market is built on and where innovation thrives. At OTC Markets Group, we’ve seen industries such as digital currencies and biotech earn the “street cred” they deserve by using old concepts in new and innovative ways and being brave enough to experiment with the unknown. The result? New companies demonstrating good governance and building long-term value for investors and stakeholders alike.


With the Triple Bottom Line, a framework or theory that recommends that companies commit to focus on social and environmental concerns just as they do on profits, being tossed around quite a bit, it is clear, this is increasingly becoming the new standard. No longer can companies exclusively serve the interests of only shareholders; now they must consider a broader range of stakeholders — from employees to suppliers, the environment, and even the communities in which a business operates — are all equally important.

Companies and the executives who run them are being held to very high standards — and our economies and communities are better for it. Companies that trade on our market understand the need for disclosure and transparency to attract sophisticated global investors. This renewed focus on better corporate governance is good for companies, good for investors and good for our markets.

An International Perspective

While there was plenty of doubt and criticism on the global stage in Davos, that pessimism was overshadowed by a renewed appetite for innovation, global cooperation and achievement. We should expect to result from shared dialogues and ideas. From inclusivity and professionalism, to gaining a broader international perspective, the themes and ideas we heard in Davos have been tested in front of a global audience and are poised to drive an innovative global future.

Source: OTC Markets Blog

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The Results are in… Congratulations to the 2020 OTCQX® Best 50

OTC Markets is pleased to announce the 2020 OTCQX Best 50 – an annual list of the top 50 U.S. and international companies traded on the OTCQX Best Market.  This year’s roster of industry leaders demonstrates the breadth, depth and diversity of the companies that trade on our premium market.

An overview of the 2020 OTCQX Best 50:

2020 OTCQX Best 50 companies traded an aggregate $13.7 billion in dollar volume in 2019.  The companies delivered to investors an average total return of 91%.

Comprising this year’s list are established U.S. community banks, smaller growth and developing companies and leading foreign exchange-listed global brands looking to build their profile with U.S. investors.

New Pacific Metals Corp. (OTCQX: NUPMF), a Canadian exploration and development company, which  cross-trades on the TSX Venture Exchange, garnered this year’s number 1 ranking as well as the top performing international company.  They are among 22 Canadian companies rounding out the list of the OTCQX Best 50.

This year’s OTCQX Best 50 included 20 companies that paid a dividend in 2019 and 14 companies featured in the OTCQX Billion+ Index (.OTCQXBIL).

Regional and Community Banks

Our OTCQX Market provides banks with a more efficient, cost effective market to build shareholder value— all without sacrificing visibility or liquidity. This year, ten regional and community banks were included in the OTCQX Best 50 list:

  • Calvin B. Taylor Bankshares, Inc. (OTCQX: TYCB)
  • Century Next Financial Corp (OTCQX: CTUY)
  • Community Bancorp of Santa Maria (OTCQX: CYSM)
  • Consumers Bancorp, Inc. (OTCQX: CBKM)
  • Denmark Bancshares, Inc. (OTCQX: DMKBA)
  • Farmers & Merchants Bancorp (OTCQX: FMCB)
  • Isabella Bank Corp. (OTCQX: ISBA)
  • Katahdin Bankshares Corp. (OTCQX: KTHN)
  • Merchants & Marine Bancorp Inc. (OTCQX: MNMB)

A global footprint

The 2020 OTCQX Best 50 represents the expansive global reach of our OTCQX Market with 34 Foreign Exchange-Listed Companies cross-trading on 11 Foreign Exchanges representing 10 countries:

Foreign Exchange Country
ASX – Australian Securities Exchange Australia
BM&F Bovespa Brazil
Bolsa Mexicana de Valores Mexico
Euronext Amsterdam Netherlands
Irish Stock Exchange Ireland
JSE South Africa
LSE – London Stock Exchange UK
Moscow Exchange Russia
Nasdaq OMX Nordic Exchange Helsinki Finland
Toronto Stock Exchange Canada
TSX Venture Exchange Canada

Six companies from last year’s ranking remained on the OTCQX Best 50 list in 2020:

  • Anglo American plc (OTCQX: NGLOY; AAUKF)
  • Experian plc (OTCQX: EXPGY; EXPGF)
  • Farmers & Merchants Bancorp (OTCQX: FMCB)
  • K92 Mining Inc (OTCQX: KNTNF)
  • Teranga Gold Corporation (OTCQX: TGCDF)

We are proud to recognize the efforts of our 2020 OTCQX Best 50 companies and their commitment to providing their investors with the premium trading experience the OTCQX Market delivers.

For additional information and to view the complete 2020 OTCQX® Best 50 ranking, please click here.

The OTCQX Best 50 is an annual ranking of the top 50 U.S. and international companies traded on the OTCQX Best Market, based on an equal weighting of one-year total return and average daily dollar volume growth. Companies in the 2020 OTCQX Best 50 were ranked based on their performance during the 2019 calendar year. 

Source: OTC Markets Blog