The OTCMarkets OTCQX dual listings offers foreign issuers seeking to go public in the U.S. an appealing alternative to listing on a stock exchange. Foreign issuers whose securities are listed on a foreign stock exchange that qualify for the exemption from the reporting requirements of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), can go public in the U.S by quotation of their securities on the OTCQX without registration or reporting obligations to the Securities and Exchange Commission (the “SEC”).
Foreign issuers with a class of securities registered under Section 12(g) of the Exchange Act also qualify to list on the OTCQX. Once accepted on the OTCQX, issuers must provide ongoing public disclosure to qualify for continued listing on the OTCQX.
Many well known exchanges are not Qualified U.S. exchanges recognized by the OTC Markets for purposes of dual listing on the OTCQX. While the OTC Markets recognizes the Toronto Stock Exchange and TSX Venture Exchange in Canada as well as the Frankfurt Stock Exchange and Prime Frankfurt Stock Exchange as qualified exchanges, the Berlin Stock Exchange is not. It is important to recognize that the listing standards of at least some of the foreign exchanges accepted by the OTCQX are comparable to those of U.S. Stock Exchanges.
OTCQX Tiers l Foreign Issuers l OTCMarkets
The OTCQX offers foreign issuers two tiers for listing on the OTCQX, OTCQX International Premier and OTCQX International.
OTCQX International l OTCMarkets
Entry onto OTCQX International requires the following:
Financial Criteria l Assets l Revenues
The OTCQX International requires that an issuer, as of its most recent annual or quarterly period end, must have US$2 million in total assets, and as of the most recent fiscal year end one of the following: (a) US$2 million in revenues; (b) US$1 million in net tangible assets; (c) US$500,000 in net income; or (d) US$5 million in global market capitalization.
Qualified Non-U.S. Stock Exchange l OTCQX
The issuer must be listed on a qualifying foreign stock exchange, such as the TSX or TSX.V, for at least 40 days prior to listing on the OTCQX International Tier.
SEC Registration l Rule 12g3-2(b) Eligibility l OTCQX
The issuer must either (1) have a class of its securities registered under Section 12(g) of the Exchange Act and be current and in compliance with its SEC reporting obligations; (2) be eligible to rely on the exemption from SEC registration provided by Rule 12g3-2(b) and be current and in compliance with its obligations thereunder or (3) if an issuer is not eligible to rely on the exemption from registration provided by Exchange Act Rule 12g3-2(b) because it does not (A) meet the definition of “foreign private issuer” or (B) maintain a primary trading market in a foreign jurisdiction as set forth in Exchange Act Rule 12g3-2(b)(ii), and is not otherwise required to register under Section 12(g) of the Exchange Act, be otherwise current and fully compliant with the obligations of an issuer relying on the exemption from registration provided by Exchange Act Rule 12g3-2(b).
If the issuer is relying on (2) or (3) above it must (i) continue to publish in English, on its website or on SEDAR, information that it (a) has made public or has been required to make public pursuant to Canadian law; (b) has filed or has been required to file with the TSX or TSX.V and which the TSX or TSX.V has made public; or (c) has distributed or has been required to be distributed to its security holders. Such documents include, but are not limited to, annual reports and interim reports (including financial statements), press releases and all other communications and documents distributed directly to security holders and (ii) must not be required to register under Section 12(g) of the Exchange Act.
Price Quotation l OTCQX
The issuer must have priced quotations published by a market maker in the OTCMarkets OTC Link.
Blue Sky Requirements l OTCQX
An issuer’s securities must at all times be available for secondary trading under state blue sky laws by each state that recognizes the Blue Sky Manual Exemption by any person who can engage in such transactions pursuant to an exemption from federal registration of such securities and the Blue Sky Manual Exemption. The issuer must be included in the Standard and Poor’s or Mergent (formerly Moody’s) securities manual, allowing brokers to sell the issuer’s securities in up to 39 states.
OTCQX International Premier
OTCQX International Premier was created for large-market capitalization, international exchange-listed issuers. Admission to the OTCQX tier has the following requirements:
• As of its most recent fiscal year end, the issuer must have either (1)(a) revenue of US$100 million, (b) listed securities with a market value of $500 million, (c) aggregate cash flow for the three preceding years of $100 million, and (d) minimum cash flow in each of the issuer’s two preceding years of $25 million, or (2)(a) revenue of $75 million, and (b) global market capitalization of $750 million.
• The issuer must meet all of the requirements of the OTCQX International tier set forth above.
OTCQX International Premier and OTCQX International Additional Requirements
Within 90 days following the date of a company’s submission of its application for listing on the OTCQX and prior to admission to the OTCQX, the issuer must post, in English, through the OTC Disclosure and News Service, all information required to be made publicly available pursuant to Rule 12g3-2(b) for the preceding 24 months. The OTCQX rules require that the issuer’s appointed PAL notify OTC Markets when such initial disclosure has been posted. Alternatively, if an issuer has a class of securities registered under Section 12(g) of the Exchange Act and files reports with the SEC, the issuer must be current and fully compliant with its SEC reporting obligations.
An issuer must appoint a PAL (“Principal American Liaison”) sponsor to help with the listing process, provide advice with respect to the issuer’s compliance with Rule 12g3-2(b), conduct an annual review of the issuer’s public disclosure posted on the OTCMarkets, and assist with responses to OTCMarkets’ requests and inquiries.
The PAL may be an attorney, investment bank or, if the issuer is listing, or plans to list, its securities in ADR form on the OTCQX, an ADR depositary.
An issuer may appoint an attorney or investment bank PAL only if: (1) the PAL submits an application to the OTCMarkets to serve as a PAL, and such application is approved; or (2) such PAL is already included on OTCMarkets’ pre-approved list. A company may appoint an ADR depositary PAL only if: (1) the ADR depositary is the ADR depositary for the company’s sponsored ADR program; and (2) the ADR depositary is included on OTCMarkets’ pre-approved list. A company’s PAL must meet the requirements and obligations outlined in Section 4 of the OTCQX Rules.
PAL Letter of Introduction
After an issuer’s initial disclosure has been posted on the OTCMarkets, the issuer must submit to OTC Markets a PAL Letter of Introduction containing certain information as set forth in the OTCQX Rules.
An issuer must pay a non-refundable application fee of US$5,000 at the time it submits an OTCQX application to OTCMarkets.
OTCQX Continued Listing Standards
The OTCQX Rules require issuers to comply with continued listing standards and rules to maintain their listing.
OTCQX Ongoing Listing Requirements
The officers and directors of an issuer listed on the OTCQX are responsible for compliance with the OTCQX rules and disclosure requirements.
Compliance with Securities Laws
Issuers on the OTCQX are required to comply with applicable federal and state U.S. securities laws and those of its country of domicile.
The issuer must, at all times that its securities are listed on OTCQX, respond to requests from any securities regulator or self-regulatory organization in its country of domicile, any U.S. federal or state securities regulator and any U.S. self-regulatory organization.
Blue Sky Manual Exemption
An issuer’s securities must at all times be available for secondary transactions under the laws of each state and territory of the United States that recognizes the Blue Sky Manual Exemption.
Retention and Advice of PAL
An issuer must retain a PAL at all times and must seek advice from its PAL in relation to a company’s obligations under the OTCQX Rules whenever appropriate and give such advice proper consideration.
Notification to the OTCMarkets of Resignation or Dismissal of PAL
A company must immediately notify OTCMarkets in writing regarding the appointment, resignation or dismissal of its PAL and the reasons therefor.
Annual Listing Fees
A company must pay an annual listing fee of US$15,000 (pro-rated for the first year; billed annually in December thereafter).
Securities on Deposit with DTC
While the OTCQX written rules require a company’s securities listed on OTCQX to be eligible for deposit with the Depository Trust Company, as determined under the rules of the Depository Trust Company, this requirement is currently suspended.
An issuer, with the assistance of its PAL, must respond to inquiries and requests from OTCMarkets from time to time.
Ongoing Disclosure Obligations for Reporting Companies
If a company is subject to the reporting obligations of Section 13 of the Exchange Act because the company has a class of securities registered pursuant to Section 12(g) of the Exchange Act, the company must continue to file, on an ongoing basis, all annual, quarterly and other interim reports required to be filed under the Exchange Act.
Ongoing Disclosure Obligations for Non-Reporting Companies
A company, so long as it is not subject to the reporting obligations of Section 13 of the Exchange Act, must ensure that the information required to be made publicly available pursuant to Rule 12g3-2(b) shall, on an ongoing basis, be posted in English through the OTC Disclosure and News Service.
Issuer Compliance Statement
The issuer must provide a letter to its PAL, at least once a year and not later than 210 days after its fiscal year end, that makes the following affirmations: (1) the company continues to satisfy the requirements for listing on the applicable OTCQX tier; and (2) either (a) the company is current and fully compliant in its obligations under Rule 12g3-2(b) and the information required to be made publicly available pursuant to Rule 12g3-2(b) is posted in English through the OTC Disclosure and News Service or (b) if a class of the company’s securities are registered under Section 12(g) of the Exchange Act, the company is current and fully compliant in its SEC reporting obligations or (c) if the company is not eligible to rely on the exemption from registration provided by Exchange Act Rule 12g3-2(b) because it does not (i) meet the definition of “foreign private issuer” or (ii) maintain a primary trading market in a foreign jurisdiction as set forth in Exchange Act Rule 12g3-2(b)(ii), and is not otherwise required to register under Section 12(g), that it is otherwise current and fully compliant with the obligations of a company relying on the exemption from registration provided by Exchange Act Rule 12g3-2(b).
Within 225 days after the company’s fiscal year end, the company shall submit to OTC Markets Group an annual letter from the company’s PAL containing certain information as set forth in the OTCQX Rules.
OTCMarkets’ OTCQX tier can provide an relatively easy way for foreign issuers to attract investors and exposure to the U.S. markets, without going to the trouble and expense of acquiring a listing on a national exchange.
For further information about this securities law blog post, please contact Brenda Hamilton, Securities Attorney at 101 Plaza Real S, Suite 202 N, Boca Raton Florida, (561) 416-8956, by email at firstname.lastname@example.org or visit www.gopublic101.com. This securities law blog post is provided as a general informational service to clients and friends of Hamilton & Associates Law Group and should not be construed as, and does not constitute, legal and compliance advice on any specific matter, nor does this message create an attorney-client relationship. For more information about going public and the rules and regulations affecting the use of Rule 144, Form 8K, crowdfunding, FINRA Rule 6490, Rule 506 private placement offerings and memorandums, Regulation A, Rule 504 offerings, SEC reporting requirements, SEC registration statements on Form S-1 , IPO’s, OTC Pink Sheet listings, Form 10 OTCBB and OTC Markets disclosure requirements, DTC Chills, Global Locks, reverse mergers, public shells, direct public offerings and direct public offerings please contact Hamilton and Associates at (561) 416-8956 or email@example.com. Please note that the prior results discussed herein do not guarantee similar outcomes.
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