Introducing The OTCID OTC Markets has announced the

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OTC Markets has announced the launch of a new market tier. Effective July 2025, Pink Current will become the OTCID, a basic reporting market requiring companies to meet minimal current information disclosures and provide management certifications. OTC Markets will still maintain the Pink Limited and Expert Market tiers for companies that do not qualify for the OTCID. OTC Markets has not yet published all of the requirements for the OTCID, but I suspect they will be similar to the existing Pink Current, with the addition of the management certifications.

I support the change and new branding opportunity. OTC Markets have struggled in recent years, primarily as a result of an inability for OTC Markets traded companies to obtain institutional financing or underwriter/placement agent banker support. Forever the optimist, the change could be just what is needed to revitalize the OTC Markets as a venture market place for U.S. micro-cap companies.

OTCID

Currently, the OTC Markets divides issuers into three levels of quotation marketplaces: OTCQX, OTCQB and OTC Pink with progressively higher listing standards. The OTC Pink is then further divided into three levels: OTC Pink Current, Pink Limited and Expert Market. For a review of the listing standards for the OTCQX and OTCQB see HERE. The historical “Pink Sheets” divided itself into these market tiers in approximately 2011, and although there have been many listing rule changes, this is the first major renovation since that time.

OTC Pink Current is comprised of companies that “alternatively report” to OTC Markets by filing quarterly and annual disclosure reports, including financial statements. The financial statements are not audited or reviewed by a PCAOB qualified independent accountant, but they must be prepared in accordance with GAAP by a person or accounting firm qualified to do so. The new OTCID will also require management certifications as to the disclosures.

In a blog related to the new OTCID, OTC Markets CEO, Cromwell Coulson points out that the “OTC” prefix on the three market tiers, relays to the investment community that these companies provide disclosures, meet various levels of corporate governance and for the OTCQX, are penny stock exempt. Likewise, the lack of the “OTC” prefix will communicate to the capital markets, that those companies have “no ongoing relationship with OTC Markets” warning investors “of the potential for market imperfections, issuer information asymmetries and other risks.”

Change is Good

Over the past several years, OTC Markets has taken a series of hits that have made it very difficult for U.S. companies to raise capital, gain liquidity and grow while trading on the OTC Markets. At the same time, OTC Markets has become a flourishing marketplace for foreign companies seeking to dual list on a U.S. trading platform. According to OTC Markets, trading in international companies now represents more than 90% of its total dollar value.

However, there remains a need for a viable U.S. venture marketplace – and in fact, that need is growing more than ever. Nasdaq has seen an unprecedented number of small and micro-cap companies that are failing to maintain the minimum continued listing requirements, hundreds of which are being delisted or voluntarily moving to OTC Markets. These delistings are likely to increase as Nasdaq implements rule changes to accelerate the process (see HERE). The NYSE American has a lower minimum bid price requirement for continued listings so has had fewer delistings but has taken steps to decrease the number of new micro-cap listings by requiring higher capital raises (and thus companies that can support a higher valuation) in its initial listing process.

Moreover, Regulation A continues to grow and provides an excellent capital raising option. Although Regulation A can be used for a Nasdaq or NYSE/NYSE American IPO, many companies that avail themselves of a Regulation A offering are too small for a national exchange but want to provide their investors with liquidity through a trading platform.

That leaves OTC Markets.

As mentioned, OTC Markets has taken a series of hits in recent years, but the tide could be turning. It has become increasingly difficult to raise money on the OTC Markets primarily stemming from the SEC’s onslaught of litigation against OTC Markets investors claiming unlicensed dealer activity. I have written about this issue on numerous occasions, including recently (see HERE). The SEC’s litigation effectively eliminated the availability of institutional money for OTC Markets entities.

Although the SEC has had a series of wins in these cases, that could be changing. In particular, the U.S. Supreme Court recently struck down the Chevron doctrine as giving too much power and authority to governmental agencies in interpreting the law (see HERE). Following that case, SEC Commissioner Mark T. Uyeda made a public statement calling the SEC’s enforcement proceedings in the dealer litigation cases an arbitrary interpretation of the dealer definition. He also challenged the SEC’s position as violating the “void for vagueness” doctrine. Notably, this is the first time a high-level SEC official discussed the dealer litigation issue – and did so in opposition.

If the courts stop siding with the SEC on this issue, institutional investors will return to the OTC Markets breathing a new life into the marketplace.

Another deterrent to institutional investors was the proposed Rule 144 rule change that would eliminate a tacking period upon conversion of a market adjustable security (such as a convertible note that converts at a discount to market price) that is not traded on a national exchange. For more on the proposed amendment see HERE. However, it has now been four years since the proposal with no action. Although the proposal remains on the SEC’s regulatory agenda, the responsive comments were overwhelmingly opposed to the change and over time, it is increasingly unlikely that the rule will be affected as proposed. A resolution of this cloud would also help ease institutional concerns with OTC Markets investments.

Bottom line is that U.S. companies need a real venture marketplace where they can access capital market investors and gain liquidity in their stock. OTC Markets once again has a chance of becoming just that.