In recent weeks, as we approach September 28, 2021, the date that SEC Rule 15c2-11 (Rule 211) goes into effect, we’ve been discussing how the rule will impact dark stocks on the OTC market, as well as investor appetite for microcap stocks in general:
Companies on the OTC not in compliance with certain financial filing requirements by September 28, 2021 will no longer be permitted to have their prices quoted by brokerage firms.
More importantly, if you own any dark stocks, it is our understanding that brokerage firms will not force you to sell the stock. However, at most brokerage firms, you will not be able to purchase any dark stocks moving forward and will only be able to sell positions.
Stocks that trade on the Expert Market Tier, denoted by a side-by-side black double diamond like this…
…can only be traded by firms or qualified investors. As warned on otcmarkets.com:
“The Expert Market is a private market to serve broker-dealer pricing and best execution needs in securities that are restricted from public quoting or trading. Restrictions can be based on issuer requirements, security attributes, investor accreditation and/or suitability risks.”
Some more clarifications that address certain questions investors might have about Rule 211 were succinctly presented by Jason Paltrowitz, Executive Vice President of Corporate Services at OTC Markets and Dan Zinn, his Chief General Counsel.
It should be noted that they clearly state the types of designations that you won’t have to worry about:
“…a number of companies are already compliant, if you are reporting current information on a regular basis…so, a member of our OTCQX or OTCQB markets…or a company that’s tagged as “Pink Current Information”, those companies are already complying with the rule.”
Those of you that frequent otcmarkets.com may be also familiar with the stop and yield signs present at some of the stocks’ profiles, which may be cause for concern.
The stop sign means the company is dark and typically provides no information to investors. A yield sign means a company provides limited information to investors, and in certain circumstances are compliant with the new rule.
We have contacted OTC Markets to get some more clarity on the yield sign designation since there are stocks in our Selected Long Disclosure Model Portfolio that show the designation.
Finally, a skull and crossbones symbol denotes a ‘Caveat Emptor’ status. While, like a yield, the company may provide limited information, otcmarkets.com takes the warning one step further to suggest that the stock might be engaging in promotional campaigns (as well as those by third parties), be the subject of investigations of fraud or other criminal activities, is suspended or halted, has undisclosed corporate actions, unusual or unexplained trading activity, and spam or disruptive corporate actions, even when adequate current information is available.
As GeoInvesting is extensively keeping up with rule 211 (and for good reason), you’ll be sure to get another update from us soon on this subject matter. If you have questions, we strongly encourage you to ask them in the comments section below. This holds true for all our posts on this subject.
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