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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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Exploring the Investor Impact of an SEC Rule Proposal

The SEC’s proposed amendments to Rule 15c2-11 focus on ways to incentivize additional company disclosure in the public markets.  While we strongly support the overall goals of the proposed amendments to increase information availability for investors, we are mindful that this rule has far reaching implications that will reduce market efficiency in certain areas.  With the OTC markets serving a wide range of investors, brokers, advisors and public companies, it is important that market participants understand and share their comments with the SEC.   We all share a common goal that the rule proposal is modernized in a streamlined manner that improves secondary trading in all securities and increases the competitiveness of America’s public markets.

To date, the comments we’ve provided include a series of recommendations to improve the effectiveness of the rule proposal. Importantly, our comments prioritize market efficiency and capital formation while still enhancing investor protection. Given this is a complex issue, we wanted to break down the core elements of the current rule proposal and the potential impact to the constituents who play an integral role in maintaining the equilibrium of our financial ecosystem.

What is the Impact for Investors Should More Than 3,000 Securities Be Eliminated from the Public Markets?

The SEC’s proposal recognizes the disclosure standards OTC Markets Group uses for our OTCQX, OTCQB and Pink Current Information designations. This means the vast majority of companies trading on these markets would remain quoted based on meeting our current information standards. The rule proposal would allow broker-dealers to rely on those designations when quoting these securities on OTC Link ATS.
However, under the rule proposal, more than 3,000 “No Information” securities that do not make current information available would no longer be eligible for public quoting.  Without an alternative solution, these securities would instead be relegated to the Grey market.  Transactions in Grey market securities have no public quote, forcing brokers to source liquidity and pricing primarily over the phone without data-driven technology.  Investors would then suffer from the lack of price discovery and broker-dealers’ inability to utilize technology or ensure best execution.   Some securities may no longer be traded or cleared by brokers or market makers because of expanded regulatory obligations.

Sophisticated, independent investors willing to take on riskier investments worry that without a regulated electronic trading market, the value of their investments will be depleted, destroying millions in shareholder value.

The Implications for Individual and Professional Investors

Every public market investor who holds shares in a company should have the opportunity to liquidate their holdings at the best possible price. It is important to note the implications for sophisticated, smaller, professional investors that do their research and make markets work — driving valuation through thoughtful analysis.

One of the largest sources of comments on the SEC’s rule proposal has been from individuals and professional investment managers who maintain a long-term value investment philosophy.

Many of these investors are the disciples of Benjamin Graham, and his book The Intelligent Investor.   It is easy to understand why these thoughtful investors adamantly oppose the SEC curbing their ability to invest in shares of distressed or dark companies that do not make current information available and do not want  those markets to be closed.  Their investments, which include distressed companies, bankruptcies and cash shells, would no longer have a public market on which to be quoted. Without a regulated, electronic market available to trade these securities, the value of these types of securities held by professional investors’ will become artificially depressed, leaving them unable to liquidate their holdings at the best possible price.

It is important to note that professional investors, both large and small, who actually do the hard work of researching securities to determine valuations through fundamental analysis, express the most concern about the impact of a rule that would require companies to make current information publicly available.

Dating back to the paper Pink Sheets, the OTC markets have provided a platform for value investors to find bargains. Such investors are guided by a strategy that says investors should do their own research to find stocks trading for less than their intrinsic value– a form of fundamental securities analysis that requires investors to dig deep for information about companies.  As value investing is a school of numbers and probabilities, there are never Blue-Chip pretensions if the price is right. Those days are well described in The Snowball: Warren Buffett and the Business of Life, by Alice Schroeder:

One of Warren Buffett’s favorite sources was the Pink Sheets, a weekly printed on pink paper, which gave information about the stocks of companies so small that they were not traded on a stock exchange. Another was the National Quotation book, which came out only every six months and described stocks of companies so minuscule that they never even made it into the Pink Sheets. No company was too small, no detail too obscure, to pass through his sieve. “I would pore through volumes of businesses and I’d find one or two that I could put ten or fifteen thousand dollars into that were just ridiculously cheap.”

Start-Ups and Early Stage Companies: Today’s “Shells” Face a Barrier to Entry into the Public Markets

We are concerned that many start-ups and early stage companies could get swept up in the rule proposal’s broadly written “shell company” definition.  Potentially, any company without significant operating revenue or issuers whose assets are primarily cash or securities, may now be categorized as a shell.  Under the rule proposal, any company considered a “shell” would no longer be eligible for public market maker quotations and would be traded only on the Grey market.

Industries such as biotech and life sciences have traditionally benefited from using reverse takeovers to efficiently and quickly go public.  These companies often have very little revenues or operations as they try to pioneer an academic theory or a speculative technology.  It is therefore hard to predict which will succeed.  That said, we need to give these more nascent companies an opportunity to thrive in the public markets.  Instead of banning all companies with the characteristics of a shell, regulations must foster best practices and better transparency.

We must also define the parameters used to characterize a “shell” so that start-ups and other early-stage companies aren’t harmed in the process.  To protect investors, the SEC should focus on directly addressing the problem of pump-and-dump schemes involving shells.  This would include banning all promotion of shells, restricting share sales by shell company insiders and affiliates, and restarting the restriction clock after any reverse takeover of a shell or business combination where a larger company merges into a smaller operating company. These changes would help make shell companies a safer capital formation tool. The SEC should strive to achieve its investor protection goals without harming capital formation and entry into the public markets.

What about investments in SPACS and companies in liquidation? 

There are many reasons a company may only hold cash and securities, particularly when combined with an investor focused governance structure.  A company holding a securities portfolio, a firm with an independent board, or a company with an approved plan of liquidation are all types of securities that should have a transparent public market — provided they disclose adequate current information.  The SEC’s rule proposal places an inequitable burden on these types of securities and their investors, particularly in comparison to the more modest burden placed on operating companies.

What Happens to Companies that Encounter Financial Reporting Difficulties? 

Today’s market volatility and global economic uncertainty will lead to many more bankruptcies, financial reporting and corporate disruptions in the months ahead.  The rule proposal, as currently written, could severely restrict market efficiency and transparency in companies that file for bankruptcy, are economically distressed or have financial reporting difficulties. These market conditions call to mind the important footprint left by 2008 financial crisis.  It serves as a reminder of the importance for even large-cap Fortune 500 companies impacted by financial difficulties and bankruptcies to have a public market for their investors, and to be able to demonstrate the value of their equities, as they reorganized.

For example, General Growth Properties, a mall operator, filed for bankruptcy in 2009 and was delisted from the NYSE.  Bill Ackman, a renowned fundamental investor, made a large bet the General Growth Properties shares had value, even when many sceptics said otherwise.  By allowing those shares to continue trading OTC, the public markets provided a tangible solution. That confidence helped the company subsequently recover, while allowing the shareholders to retain more value.  The company’s market did not close, and electronic trading, market making, and best execution continued.

“Clearly, we think there’s plenty of asset value over liabilities,” he said. “We think (there’s) huge potential award relative to limited risk. Limited depends on your stomach.”  Bill Ackman on investing in General Growth Properties during bankruptcy[1]

[1] https://www.reuters.com/article/generalgrowth-ackman/investor-ackman-sees-13-fold-return-on-general-growth-stake-idUSN2728005920090528

Under the current rules, when companies are no longer able to provide financial reporting they are labeled as delinquent, while investors in their shares still have a transparent and efficient market.  More importantly, minority investors can sell their shares to more risk tolerant players. These types of securities are clearly designated with a “stop sign” icon and a “warning” symbol on our website, indicating that investors should undertake additional due diligence and that those with material inside information may be violating securities laws if current information is not publicly available.

Many brokers have put safeguards in place to ensure that less sophisticated investors can receive best execution when they liquidate shares but are restricted from opening new positions.  Codifying these practices for the purpose of better gating these markets will protect main street investors and help stop insiders from preying upon their minority investors.

Understanding the Impact to the Broker-Dealer Community

The role of a broker-dealer should be to provide transparent pricing and liquidity in the stock.  The SEC proposal would require broker-dealers trading No Information securities to restrict limit orders from affiliates and limit shell company trading.  For electronic market makers, the proposal would turn the colloquial Know Your Customer, or ‘KYC’ obligation into a Know Your Correspondents Customers, ‘KYCC’ standard on a transaction by transaction basis. This is essentially unworkable and valuable market makers may exit the market entirely due to the high risk of fines for non-compliance.

Regulated broker-dealers provide transparent pricing and liquidity and ensure that their best execution obligations are met.  Similar to the risk posed to professional investors, the largest risk for broker-dealers is the potential that 3,000+ No Information stocks would fall into the Grey market – with sparse pricing information, a lack of transparency, and no electronic mechanism to facilitate best execution.

Our Solution: An Expert Market

We propose that securities without current information available be made eligible for quoting on an “Expert” market, where quotes are distributed only to professional investors and other regulated or sophisticated participants.  Retail investors would be restricted from viewing quotations in “Expert” securities; however, they would still be able to receive best execution from their broker-dealer when selling their shares.

One rule proposal cannot solve all problems, and when attempted, it can often become overreaching and problematic.  We see a successfully streamlined and modernized Rule 15c2-11 as part of an integrated effort that includes other rule updates designed to:

  1. Restore trust and transparency to the share issuance process by modernizing the SEC’s transfer agent rules
  2. Better inform market participants with improved insider reporting and disclosure and regular large investor filings for all publicly traded securities
  3. Eliminate information asymmetries by clarifying Rule 10b-5 restrictions on insiders and affiliates trading when adequate current information is not publicly available or increase restrictions on current and former affiliates selling after business combinations or reverse takeovers
  4. Initiate a thoughtful industry discussion of when and how less sophisticated investors should be gated from higher risk areas of the securities markets to protect them from their lack of understanding.

We remain committed to working with regulators, and with continued industry engagement and feedback, we believe an amended Rule 15c2-11 can be appropriately tailored to help improve the transparency and efficiency of the OTC markets for all stakeholders.

OTC Markets Group welcomes your feedback.  We encourage you to contribute to this discussion and share your perspectives by filing a comment with the SEC.

For more information about the rule proposal, please click on the following video and visit OTC Markets Public Policy Page.

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Capital Raising During Times of Uncertainty — Issuers Beware!

As the public market for thousands of early stage and growth companies, OTC Markets Group has seen the good, the hard and the plain ugly when it comes to what happens after a capital raising.  Even in the best of economic times, issuers often fall prey to bad advisors offering “too good to be true” financings with terms that dump shares, dilute shareholder value and destroy companies.

Small and micro-caps have always had to work harder to secure growth capital. These challenges have only been exacerbated by the current Covid-19 pandemic and its effects on the global economy.   In navigating financing options, management teams need to develop the skills necessary to discern a good deal from a bad one, avoid questionable players and successfully raise capital in turbulent times.

Josh Lawler, Partner at Zuber Lawler points out: “If you are looking for a capital infusion to maintain operations, recognize that it may come at greater cost, both financially and in terms of governance, liquidation preferences and like non-financial terms.” 

But what good is raising money now if it will ultimately destroy the company later?

Best Practices for Securing Growth Capital

Below are some helpful tips based on our years of experience in the small/micro-cap financing space.

First and foremost, it is important to do your due diligence on the advisor/investment banker offering to help you with the raise.

Doug Ellenoff, Managing Partner of law firm Ellenoff, Grossman & Schole suggests: There are many firms across the country, select the bank that is appropriate for your size company and knows your industry. Make sure that they have been active in the capital markets recently. Ideally, make sure that the firm has depth of experience in your industry. Do they mention your industry on their website? Do they have analyst coverage? Do they write research? Do they know public market investors that they work with regularly and are familiar with your industry and your business? Just because you haven’t heard of them before, shouldn’t mean that you shouldn’t talk to them or that they aren’t very credible. They may be but do your homework. Speak to other clients and get a sense of them, whether they over promise, avoid finders. If they aren’t licensed broker dealers, they cannot get paid for helping you raise money. There are individuals that opportunistically want to prey on your desperation, so do not dispense with good judgment and your own proper due diligence.”

How Not to Fall Prey to Bad Actors

As with any industry, there are several “bad actors” in the private placement and convertible note[1] financing space. Know all the players in a financing and their associates.  We recommend that any issuer investigate the principals of any prospective lender and their history of deals.  Financings through offshore entities, newly formed or anonymous vehicles with opaque ownership should raise red flags.

FINRA’s Broker Check, the SEC’s SALI Database, and the various enforcement materials made publicly available by state regulators are good resources for an issuer to start their research. The Canadian Securities Administrators, the collection of provincial regulators, also has a large, publicly available repository of individuals that have been the subject of securities-related disciplinary actions.

Once you have decided on an advisor or banker to help with your raise, the most important thing is to KNOW THE TERMS!  Receiving the money is the end goal, but it should not be done at the expense of your company’s long-term viability.

Private Placements and Convertible Debt

We all know that private placements and convertible debt[2] arrangements are intentionally structured to maximize profits for lenders. From an issuer’s perspective though, there’s no excuse for not understanding the mechanics of this type of financing. Issuers should fully comprehend all the terms of any arrangement, paying particular attention to the specifics regarding conversion and default.

Conversion features at a fixed price, especially one that closely resembles prevailing market prices, pose fewer risks to an issuer and its shareholders. Conversely, variable priced conversion features that are based on the market price of an issuer’s securities, sometimes called “Death Spiral” or “Toxic” financings, can have more drastic effects. In our experience, notes with these features commonly lead to dilution and can depress the trading price of an issuer’s securities– and, the worst, can dilute existing shareholders holdings[3] to almost nothing.  Industry practices differ, but these features generally allow for conversion at anywhere from 95% to as low as 50% of the market price (resulting in discounts of 5%-50% for the lender).

Additionally, many of the most egregiously structured conversion agreements peg the conversion to the lesser of the company’s lowest trading price or closing bid price over a specific time period.  So, not only do the notes always convert at a discount to the market price but will generally be at the absolute bottom of the company’s recent price range.

The default provisions of convertible note financings typically exacerbate an issuer’s situation when they’re deemed to be in default. When an issuer is deemed to be in default for whatever reason (of which there can be many hidden in the worst financing agreements) these clauses often increase the total amount owed by an issuer by adding multipliers to the outstanding principal and interest.  In some cases, a default also allows lenders to convert debt at an even steeper discount.  It’s important for an issuer to understand what constitutes a default event and, to the extent they’re able, avoid defaulting on notes.

Beneficial Ownership

Convertible notes are also intentionally structured to impose limits on the amount of shares a lender can obtain. The most common terms specifically prevent situations where the lender could be deemed to be a five or ten percent beneficial owner of a class of the issuer’s securities. This is done purposely to avoid disclosure and various other requirements employed under federal securities laws. While not necessarily indicative of any wrongdoing, issuers should be aware that these limits are present in convertible notes for a reason, including perhaps to avoid the scrutiny or detection by existing investors or regulators.

Dilution and Effect on Trading Price

Issuers raising capital with convertible note financings should know the risks as they relate to the dilution for existing shareholders and the effect that convertibles can have on the trading price of their securities. These arrangements (especially those with variable price conversion mechanics) subject the issuer’s securities to dilution and downward pressure as a result of lenders converting debt to shares and selling those shares. Generally, lenders will convert notes in tranches with a view to quickly liquidating their positions. As lenders sell their newly issued shares, the price can decline quickly, allowing them to convert portions of the note into larger and larger share amounts. The overall effect reduces the proportional ownership of other existing shareholders and can drastically reduce the trading price for an issuer’s securities.

Monitor News and Promotional Activity in Your Stock

After you have done the financing, it is very important that management teams monitor the news and promotional activity in their stock.  We often get calls from management teams claiming that there must be naked shorting in their stock given price activity.  Yet, often, this price activity can be directly tied to a recent financing.   In certain cases, lenders may coordinate their selling of an issuer’s securities with stock promotion campaigns. To optimize their returns, a lender might initiate an anonymous promotional campaign touting an issuer while they attempt to sell of a tranche of shares at inflated prices. These promotional campaigns by third parties often make unsubstantiated or fraudulent representations.  Promotional campaigns can be a short as one or two day– -long enough for a lender to sell of most of its position.

The process can be chronic as anonymous bad actors seek to stay under 5% ownership. A lender might convert another portion of a note when the share price has receded after a promotional campaign has ended and then begin a new campaign to sell that portion later. Issuers should be aware that lenders have a vested interest in maximizing their return from these financings.  All these sales have the net effect of putting downward pressure on an issuers stock and destroying shareholder value.

Josh Lawler adds: “…. you must keep in mind that any transaction that heavily dilutes or subordinates your existing investors will be scrutinized.  Especially if insiders are part of the purchasing syndicate.”

Where Issuers May Run Into Trouble

Accepting financing in the form of convertible notes can be a decent short-term option for meeting an issuer’s cash flow needs. That said, some issuers run into trouble when they resort to this type of financing habitually.  Issuing convertible debt to repay debt obligations from other notes is a poor outcome for issuers and their shareholders, so institutional and long-term investors will avoid companies with these bad habits.

It’s possible for an issuer to improve its standing by negotiating with its existing noteholders rather than continuing to seek further financings to meets its obligations. There have been cases where outstanding debt is forgiven as a result of negotiations and issuances of other classes of securities. In other cases, issuers have renegotiated the terms of their outstanding debt to restrict the amount that lender can sell during specified periods.  Issuers overwhelmed by their debt situation should consult with their securities attorney to construct a plan that’s right for them.

As Yoel Goldfeder from VStock Transfer notes, “We realize that things may be difficult now, but always remember that as an officer or director you have a duty to your shareholders. Make sure that you understand all the benefits and risks associated with your decision and consult with experts in the space who have had many years working with companies like yours.”

Lawler adds: “True that the challenge is often the opportunity, but both success and failure will be magnified.  Follow good practices and you will survive, and possibly thrive.”

[1] https://www.bloombergquint.com/business/death-spiral-whiz-kid-sason-sued-by-sec-for-penny-stock-fraud

[2] https://www.sec.gov/fast-answers/answersconvertibleshtm.html

[3] https://www.wsj.com/articles/a-shipping-companys-bizarre-stock-maneuvers-create-high-seas-intrigue-1499960367

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‘Taking Action Earlier’ Could Have Delayed U.S. Outbreak, Says CDC’s No. 2 Official


The U.S. government and its top health agency missed several opportunities to slow the spread of the coronavirus, the No. 2 official at the Centers for Disease Control and Prevention told the Associated Press Friday—a more critical evaluation than what has come from the White House.


Limited testing and delayed travel alerts for areas like Europe led to a sharp rise in coronavirus cases across the country starting in late February, Dr. Anne Schuchat, the principal deputy director of the CDC, said Friday.

In a report published by the CDC, she analyzed the U.S. response to the outbreak, concluding that action was not taken quickly enough and several opportunities were missed to curb the spread of the pandemic.

“We clearly didn’t recognize the full importations that were happening,” Schuchat told the AP, adding, “I think the timing of our travel alerts should have been earlier.”

While the Trump administration imposed travel restrictions on anyone who had traveled to China starting in early February, it didn’t block travel from Europe until March 11.

Nearly 2 million travelers arrived in the U.S. from Italy and other European countries that were having outbreaks during February, Schuchat notes in her article.

Delaying travel bans allowed for the virus to spread throughout the U.S. and “contributed to the initiation and acceleration of domestic COVID-19 cases in March,” her report found.

Crucial quote

“I think in retrospect, taking action earlier could have delayed further amplification [of the U.S. outbreak], or delayed the speed of it,” Schuchat said in an interview. “The extensive travel from Europe, once Europe was having outbreaks, really accelerated our importations and the rapid spread.”


“This report seems to challenge the idea that the China travel ban in late January was instrumental in changing the trajectory of this pandemic in the United States,” Jason Schwartz, an assistant professor of health policy at the Yale School of Public Health, told the AP. He noted that while the article is carefully worded, it marks a departure from that White House narrative.

Big number: Over 1.1. Million

That’s how many Americans have contracted coronavirus so far, with over 65,000 deaths. The United States is the hardest-hit nation from the pandemic, with about a third of the world’s reported cases and more than a quarter of the deaths.

Further reading

Public Health Response to the Initiation and Spread of Pandemic COVID-19 in the United States, February 24–April 21, 2020 (CDC)

Most World Leaders See Approval Ratings Surge Amid Coronavirus. Not Trump. (Forbes)

Report: CDC Director Warns A Second Coronavirus Wave Would Be ‘Even More Difficult’ (Forbes)

Reopening States Before June Would Save Millions Of Jobs But Result In Hundreds Of Thousands More Coronavirus Deaths: Report (Forbes)

Full coverage and live updates on the Coronavirus

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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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OTC Markets Fundamentals

Jason Paltrowitz’s Interview with Edison’s
“Accessing the Global Capital Markets” Interview Series

EVP of Corporate Services for OTC Markets Group, Jason Paltrowitz joins Rachel Carroll – President, Managing Partner of Edison, to discuss our market structure and how OTC Markets Group provides an efficient, cost effective approach to accessing the U.S. Capital Markets. With over 20 years of cross-trading experience, Jason also provides recommendations to small cap companies looking to access the U.S. Capital Markets.

The 10,000 securities that trade on OTC Markets are segmented into the three tiers  – OTCQX, OTCQB and Pink. Jason explains in detail how the segmentation works and the function of each market tier, including how:

  • Pink is a Broker Market in which broker dealers can decide to trade a security based on demand from an investor
  • Issuers engage to have their security traded on the OTCQX & OTCQB Markets
  • OTCQX is the top tier with companies that meet the highest financial and governance standards
  • OTCQB is a Venture Market for early stage & developing companies

Companies that begin cross-trading on OTCQX on average see a two-fold increase* in U.S. ownership in the first year.  Additionally, there are many benefits of cross-trading on the OTCQX Best Market:

  • More cost-effective avenue for reaching U.S. investors
  • Decreased risk for a Foreign Issuer being able to leverage their existing reporting standards

Companies need to consider the differences between a company’s home market and the U.S. when embarking on a U.S. IR strategy. For example, the approach that works at home with a close broker relationship will likely not work in the U.S. given the size of the U.S. market.

Cross-Trading on OTCQX helps establish a company’s’ presence in the U.S. by:

  • Having a searchable U.S. ticker
  • Trading in U.S. dollars and during U.S. market hours
  • EDGARizing the company’s financials
  • Ensuring News Flow distribution to Bloomberg, CNN Money, MSNBC, etc.

Beginning to cross-trade on OTCQX is just the first step. Jason advises companies that if it makes sense to have a North American IR strategy– consistency is crucial. Trading on OTCQX also coincides with visibility services that help tell the company’s story, but it is essential to combine this with a well-thought-out IR strategy.

OTC Markets Group Inc. (OTCQX: OTCM) itself serves as a successful case study for the OTCQX Market.  In the past 10 years since OTC Markets went public, the company has leveraged IR principles shared in this interview to grow itself from a sub $50 million to an over $400 million market cap company today.

Visit https://www.otcmarkets.com/ to learn more about OTC Markets Group; how our markets work; how dealer markets work; ATSs vs. an Exchange; and learn about trading on our markets.

*Recent Study by Oxford Metrica

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

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CBLR: A win for most, but time for the rest to move on

In November, the federal banking agencies jointly issued a final rule that provides for an optional, simplified measure of capital adequacy, known as the community bank leverage ratio framework (CBLR), for qualifying community banking organizations. The final became effective on January 1, 2020.

Historically, the adequacy of bank capital has been judged based upon a complicated series of ratios and formulas. CBLR is intended to provide a simpler way to calculate capital — hoping to make this easier for community banks.

Many banks and trade groups were hoping for an 8% Leverage Ratio eligibility threshold.  While that now seems unlikely to happen, the final version of the CBLR framework does recognize the fact that the vast majority of community banks already meet or exceed capital requirements.

To be eligible for this simplified CBLR approach, a bank must meet the following criteria:

  • Leverage ratio greater than 9 percent;
  • Less than $10 billion in average total consolidated assets;
  • Off-balance-sheet exposures of 25 percent or less of total consolidated assets;
  • Trading assets plus trading liabilities of 5 percent or less of total consolidated assets; and
  • Not an “advanced approaches” banking organization.

When the Qaravan team applied the above criteria to Q3 2019 sector data, we found a little over 4100 banks (77% of all U.S. banks) would be potentially eligible.

In the list above, one point of controversy that remains is the leverage ratio threshold of 9%. While drafting the CBLR rule, regulators had indicated this number would be somewhere between 8 and 10%. Banks and trade groups had hoped (and lobbied) for 8% and they have promised to keep pushing for this rate. They argue that 9% instead of 8% leaves a large group of otherwise well-capitalized banks unable to take advantage of the new CBLR rule.

However, from a regulator’s perspective, it’s worth noting that under the 9% rule, a full 89% of banks meeting all other CBLR criteria currently already have eligible Leverage Ratios above the 9% threshold. And of those 11% that do not meet this Leverage Ratio threshold today, half are within 50 basis points of qualifying (i.e. LR between 8.5 and 9).  In the end, it would seem only about 5% of otherwise eligible banks would need to substantially increase their current leverage ratios to qualify.

This is easiest to see in the distribution chart below–banks in green are all already above 9% threshold, banks in yellow are within 50 basis points, and banks in red are below 8.5%. Only those in red would need to substantially increase their leverage ratios to become eligible.


Source: OTC Markets Group QaravanSM

The Data Defends The Regulator’s Decision

Naturally, if you’re one of the 400 banks with Leverage Ratios between 8 and 9%, you may be disappointed. Bankers have provided several compelling reasons for a lower threshold. However, when we (Qaravan) take an objective look at the distribution curve above, we see little incentive for regulators to reduce the CBLR threshold to 8% and risk a leftward shift sector-wide capitalization levels.

The Devil You Know.

Though the ongoing concern of CBLR tends to be on Leverage Ratio thresholds, our analysis revealed a large number of banks that are on the border of other CBLR qualification criteria as well.  It’s worth noting that while the elimination of risk weighting of assets would be a big relief for many banks (the key promise of using the CBLR), falling out of compliance with CBLR criteria and having to re-establish a risk weighting program later could be even more problematic for banks. With this in mind, banks that are on the bubble of any of qualification criteria may want to consider how their strategic plans could impact future CBLR eligibility.  For example, a rapidly growing $5B bank, or a bank expecting long term downward pressure on their capital levels both may be better off just sticking with the current risk weighting regime they know.

Tony Hodson is Senior Vice President of Market Data at OTC Markets Group. Tony leads QaravanSM, an integral part of OTC Markets Group’s suite of data products are designed to provide intuitive risk & performance analytics on more than 5,000 U.S. banks to banking and financial industry professionals. Connect with Tony at tony@otcmarkets.com.

Source: OTC Markets Blog