Letter to the editor: OTC Markets Group helps investors, regulators discern treasure from ‘trash’

I am writing in response to last week’s editorial, “Thoughts for your penny stock,” to correct some errors and misconceptions.

Firstly, there is no longer any such thing as the “pink sheets.” In 1997, I led a group of investors to buy the paper “pink sheets” and have since transformed it into a fully electronic Securities and Exchange Commission (SEC) registered alternative trading system called OTC Link ATS which is operated by OTC Link LLC, a Financial Industry Regulatory Authority (FINRA) member broker-dealer and subsidiary of OTC Markets Group.

So, it’s inaccurate to use the term “pink sheets” or to say that OTC Markets Group still operates the “pink sheets.”

Secondly, while there are indeed dubious “penny stocks” trading on our marketplaces, there are also thousands of attractive U.S., Canadian and global companies like Roche, Adidas, Volkswagen and Bombardier. In fact, we are primarily a market for global companies: almost 80% of our total dollar volume last year was in U.S. trading of American Depositary Receipts (ADRs) and foreign ordinaries traded on the Toronto Stock Exchange and other leading exchanges.

At OTC Markets Group, our mission is to create better informed and more efficient financial marketplaces. In 2003, we launched our electronic trade messaging platform, which later became OTC Link ATS, our SEC registered alternative trading system. This kicked off a series of changes in technology, transparency and regulation that has transformed us into a modern, efficient and better-regulated market. Today, our marketplaces are home to 10,000 U.S. and global securities which you can buy almost identically to a NYSE, NASDAQ or TSX Venture Exchange-listed security with FINRA and SEC trading regulations.

That said, our broker-dealer subscribers have a regulatory obligation to deliver best execution to investors. For investors, we help identify these companies based on the quality of their financial disclosure by segmenting them into three marketplaces: OTCQX, our best marketplace with qualified companies; OTCQB, our venture stage marketplace with U.S. reporting companies; and OTC Pink, our open marketplace with variable reporting companies.

Our OTCQX marketplace is one important way we help high quality management teams of qualified companies provide their investors with good information and efficient trading. Companies that qualify for OTCQX must meet the highest financial standards, provide ongoing disclosures and be sponsored by a professional third-party FINRA-member bank or securities attorney. (A large percentage of TSX Venture Exchange companies cannot meet the qualification standards of OTCQX.) For companies that trade on our OTCQB and OTC Pink marketplaces, we provide additional services like our OTC Disclosure and News Service and Real-Time Level 2 quote service to help them provide more information to investors.

Our OTCQB and OTC Pink marketplaces will always have some problem companies, primarily SEC-reporting and regulated development-stage companies. For those companies, we have instituted a Caveat Emptor policy in which we label a company with a Caveat Emptor, skull-and-crossbones sign when we believe there is spam or questionable promotion or when they are suspended by regulators, including Canadian regulators. Our Caveat Emptor flag has been adopted by investors and the compliance departments of many broker-dealers, clearing firms and other industry participants to aid in investor trading decisions and identify questionable brokerage customers and often leads to suspension of trading by the SEC.

So, while the broad range of OTCQB and OTC Pink companies will always include fraudsters from Canada and elsewhere, the transparency and segmentation we have created makes it easier for investors to research those companies and avoid them. Meanwhile, the marketplace-driven regulation of OTCQX has created a home to qualified U.S. and global companies that want to provide investors with informed and efficient trading. As more high quality companies join the OTCQX marketplace and more companies are transparent about their news and disclosure, our better informed markets will help more investors and regulators discern treasure from “trash.”

R. Cromwell Coulson, president and CEO

OTC Markets Group

New York City