Monthly Archives: February 2015

What is OTCQX?

OTCQX is the highest market tier on, and is reserved for “established, investor-focused U.S. and global companies.”  The OTCQX marketplace attracts the best public companies since it has relatively high financial requirements, and only accepts those with a history of compliance with U.S. securities laws that are current in their disclosure.   OTCQX companies must also be sponsored by a professional third-party advisor known as “DAD/PAL.”

Because of these requirements, OTCQX can be a logical step toward a future uplisting onto the NYSE MKT or NASDAQ.

There are Three Types of OTCQX Companies

 OTCQX International

OTCQX International is the marketplace for global companies whose securities are already listed on an international stock exchange.   The platform provides visibility to US investors and a recognized forum for disclosure and transparency.


OTCQX US is the OTCMarkets’ tier for smaller and high-growth United States based public companies which exceed certain high financial requirements and operating standards.  These OTCQX Issuers are demonstrating a commitment to full disclosure and transparency.

OTCQX for Banks

OTCQX for Banks is the marketplace for well capitalized regional and community banks with strong management.  OTCQX for Banks accepts both SEC reporting banks and non reporting banks, and the platform gives each the ability to increase their investor visibility while meeting existing regulatory requirements.


What is the Piggy Back Rule?

The phrase “piggyback qualified” refers to a stock for a public company that has already had a Form 211 filed by a FINRA registered market maker, and meets the “frequency-of-quotation” requirement under SEC Rule 15c2-11(f)(3).

This frequency-of-quotation test is passed when a broker/dealer publishes quotations in the stock in the appropriate interdealer quotation system for a minimum of Twelve (12) Business days during the preceding Thirty (30) calendar days.   Also, during that time, there can be no greater than Four (4) consecutive business days without published quotations in the stock.

After this criteria has been satisfied, the stock is known as “piggyback qualified” and other market makers may publish quotations in the stock without filing their own Form 211.

Insider Trading and Rule 10b5-1 Plans

What is a Rule 10b5-1 Trading Plan?

A Rule 10b5-1 Plan is a written plan for trading securities that is designed to provide an affirmative defense to allegations of insider trading when prearranged trades are made in accordance with Rule 10b5- 1(c).

Any shareholder executing pre-planned transactions pursuant to a Rule 10b5-1 Plan is presumed to have an affirmative defense against accusations of insider trading,

  1. If the plan was made in good faith; and
  2. If the plan was made at a time when the shareholder was unaware of material non-public information.

The key here is that even if the actual trades under the 10b5-1 trading plan are executed after the shareholder becomes aware of material, non-public information, the shareholder would still have affirmative defenses against allegations of insider trading.   For this reason, Rule 10b5-1 trading plans are useful for public company insiders, like officers and directors, who are presumed to have insider information.

What are the Affirmative Defenses Under 10b5-1?

  1. For shareholders–Purchases and sales made pursuant to the 10b5-1 trading plan were not made “on the basis of” material non-public information, even if the trader was actually aware of material non-public information when the trades were made.
  2. For brokers or investment banks–The individual making an investment decision on behalf of the brokerage or bank was unaware of material nonpublic information, and the brokerage or bank has reasonable policies and procedures in place to prevent insider trading.

What are the benefits of a 10b5-1 Trading Plan?

In theory, Rule 10b5-1 trading plans can provide the following benefits:

  1. An affirmative defense to allegations of insider trading for traders buying and selling pursuant to the terms of the trading plan;
  2. The ability of corporate insiders to plan future sales of their stock; and
  3. Avoiding potentially negative news associated with insider sales.

Will a Rule 10b5-1 Plan Eliminate Liability for Insider Trading?

No. A 10b5-1trading plan does not automatically create a “safe harbor” or eliminate liability for insider trading, but it does allow the shareholder to cite an affirmative defense, which in theory can refute the allegations of insider trading if the trader can demonstrate that the buying or selling occurred pursuant to the terms of the 10b5-1 plan.


What is Fair Disclosure under Regulation FD?

Regulation FD is a public company disclosure rule designed to address selective disclosure.  The theory behind Regulation FD is to prevent insider trading by promoting the full and fair disclosure of material non public information.

When a public company discloses material nonpublic information to shareholders or market professionals, (who may trade on that information) that the company must also make public disclosure of the same material information.

How is Public Disclosure Made Under Regulation FD?

Under Regulation FD, the required public disclosure is generally made by filing an 8-K, but it is possible for an Issuer to follow the spirit of the regulation through a combination of other methods if the same information is disseminated.

When Must Disclosure Be Made Under Regulation FD?

Under Regulation FD, the timing of the required public disclosure depends on whether the selective disclosure was intentional.  If the selective disclosure is intentional, the public company must make public disclosure at the same time.   In the case of a non-intentional disclosure, the Issuer must promptly make disclosure to the public.