FINRA Rule Proposal Would Add New Quotation Requirements for OTC Securities and Eliminate the OTC Bulletin Board Market | Practical Law

FINRA Rule Proposal Would Add New Quotation Requirements for OTC Securities and Eliminate the OTC Bulletin Board Market | Practical Law

FINRA filed with the SEC proposed rule changes that would add new quotation requirements for broker-dealers for over-the-counter (OTC) equity securities and terminate the operation of the OTC Bulletin Board market.

FINRA Rule Proposal Would Add New Quotation Requirements for OTC Securities and Eliminate the OTC Bulletin Board Market

by Practical Law Corporate & Securities
Published on 02 Jul 2014 • USA (National/Federal)
FINRA filed with the SEC proposed rule changes that would add new quotation requirements for broker-dealers for over-the-counter (OTC) equity securities and terminate the operation of the OTC Bulletin Board market.
On June 27, 2014, the Financial Industry Regulatory Authority (FINRA) filed with the SEC proposed rule changes to:
  • Require FINRA member inter-dealer quotation systems to provide FINRA with a written description of quotation-related data products offered and related pricing information.
  • Adopt rules governing the treatment of quotations in over-the-counter (OTC) equity securities by FINRA member inter-dealer quotation systems to ensure fair and non-discriminatory access to those systems.
  • Expand the FINRA reporting requirements related to quotation information in OTC equity securities.
  • Delete the FINRA Rule 6500 Series, which governs FINRA's operation of the OTC Bulletin Board (OTCBB), to cease operation of the OTCBB.
The OTCBB is an electronic quotation system operated by FINRA that displays real-time quotes, last-sale prices and volume information for OTC securities that are not listed on a US national securities exchange. Most of the OTC securities quoted on the OTCBB are also quoted on the OTC Markets (OTCQX, OTCB and OTC Pink), which are operated by OTC Markets Group Inc.
In its rule proposal, FINRA states that the level of transparency in OTC equity securities facilitated by the operation of the OTCBB has been declining significantly for years as other OTC quotation venues, including the OTC Markets, have grown. As a result, FINRA does not believe that the termination of the OTCBB would have a significant impact on issuers, investors, FINRA member broker-dealers or the current level of quotation transparency for OTC equity securities.
Before discontinuing the OTCBB, FINRA will take steps to ensure a smooth transition for issuers and FINRA members, including:
  • Publicizing announcements through FINRA's website and the OTCBB's website.
  • Directly contacting active OTCBB market makers.
  • Notifying and educating the few remaining OTCBB-only issuers.
  • Emailing dually-quoted issuers about the cessation of quoting on the OTCBB.
Despite the termination of the OTCBB, FINRA will continue to centralize last-sale transaction reporting through the FINRA OTC Reporting Facility. This will ensure that FINRA continues to disseminate transaction information and reliable last-sale information for OTC equity securities, including penny stocks.
FINRA will announce the effective date of these proposed rule changes in a Regulatory Notice to be published no later than 60 days after SEC approval. The effective date will be no later than 180 days after SEC approval.
Update: The OTC Reporting Facility was migrated to a new platform effective November 17, 2014 and the OTCBB.com website was shut down as part of that process. There was no change to the OTCBB itself and it continues to operate. Information on the OTCBB, including quotes and market statistics, can now be found on FINRA's website.
Update: On March 3, 2015, FINRA withdrew the proposed rule changes.
For more on over-the-counter trading markets, see Practice Note, Selecting a US Securities Exchange: Over-the-counter Markets.