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 On October 16, 2020, the SEC adopted amendments to codify and modernize certain aspects of the auditor independence framework. The rule proposal was published in December 2019. The current audit independence rules were created in 2000 and amended in 2003 in response to the financial crisis facilitated by the downfall of Enron, WorldCom and auditing giant Arthur Andersen, and despite evolving circumstances have remained unchanged since that time. The regulatory structure lays out governing principles and describes certain specific financial, employment, business, and non-audit service relationships that would cause an auditor not to be independent. Like most SEC rules, the auditor independence rules require an examination of all relevant facts and circumstances. 

Somewhere, way in the back of your closet, you may have a white cotton sport jacket or a business suit with shoulder pads. They’re garish, woefully out of style, but you can still remember when they were the height of couture, and wearing them felt so very natural. Every time you considered parting with these treasures from the past, you just couldn’t pull the trigger. For reasons unknown, style being a fickle mistress, you wake up one day and you see one or two of the “in” crowd wearing parachute pants and moon shoes with Velcro closures. Voila, everything old is new again.

In a year of numerous regulatory amendments and proposals, COVID-newsworthy capital markets events, and endless related topics, and with only one blog a week, this one is a little behind, but with proxy season looming, it is timely nonetheless. In July 2020, the SEC adopted controversial final amendments to the rules governing proxy advisory firms. The proposed rules were published in November 2019. The final rules modified the proposed rules quite a bit to add more flexibility for proxy advisory businesses in complying with the underlying objectives of the rules.

Palm Beach Securities Attorney Laura Anthony Provides a Global Perspective on US Public Markets There was a time when a midnight coup in some far-off land sent US investors scurrying for the sidelines. Hackneyed invest-in-gold-now ads appeared everywhere, from out of nowhere, and cash poured into money market accounts with the veracity of melting snow in an Aspen avalanche. The Venezuelan government is so disordered that it’s unlikely even Venezuelans know who’s running the show. North Korea unabashedly touts their nuclear weapons capabilities like Ralphie Parker with an official Red Ryder carbine action air rifle.

Palm Beach Securities Attorney Laura Anthony Examines the Coronavirus Outbreak as it Relates to the Public Markets The possibility of a global pandemic virus spreading out of control is indeed terrifying. There is a very specific feeling of helplessness that accompanies fighting an enemy that is invisible, relentless and able to move among us silently, without remorse or hesitation. The investing public is rarely concerned about other catastrophes such as earthquakes that can spawn tidal surges, dirty bombs or even war.

Corporate Finance Attorney Laura Anthony Explains There’s an old adage in the financial industry: “In an up market, everyone is a genius.” The saying is dated and a bit cynical, but everyone still understands the message. The problem is that it simply isn’t true. It should more accurately be phrased: “In an up market, everyone thinks they can’t be taken.” There’s one particular hazard that rears its head in a bull market: financial scalawags take advantage of the over-eager investment public and pitch an array of bogus financial instruments. Ultimately, whether it’s life insurance policies that have been bundled or foreign government backed bonds, it all comes down to the Ponzi.

Corporate Finance Attorney Laura Anthony Discusses Staying Ahead of the Curve as New Business Sectors Emerge Every profession has its own specific demands, many of which seem daunting to those in another line of work. Physicians are required to work in close contact with patients infected with increasingly virulent pathogens. Fund managers must make decisions that can result in exhilarating success or dismal failure, and attorneys must consider every possible plan of action in helping advise their clients on which option will result in the most beneficial outcome.

 Only a select few recognize sweeping socioeconomic change as it is occurring. The rest of the world only sees it in hindsight. Paradigm Shift: an important change that happens when the usual way of thinking about or doing something is replaced by a new and different way. – Merriam-Webster Scholars and luminaries held fast to the belief that the foundation of Western civilization was comprised of certain building blocks that were impervious to change. Eastern and Western philosophy would never integrate; innovation and invention were exclusively the progeny of large corporations; and the concept of replacing hard currency with a virtual, electronic counterpart was nothing short of science fiction.

Pandemic flu outbreaks and civil unrest are like a protein-rich diet for US public markets. Analysts can slide beads around on abacuses all day, postulate theories and attempt to explain it, but the resiliency of the US markets defies rationale. New Year’s Day 2020 was a day like any other. COVID-19 had yet to come ashore. No one dreamed that curfews, home-schooling and self-quarantining would become commonplace by the second week of March. As for the recent coast-to-coast wave of civil unrest, Nostradamus himself couldn’t have called that one. Yet these things occurred.

 Regardless of the economic climate, the effectiveness of any law firm is determined by the proficiency of their support staff. In turn, the proficiency of a law firm’s support staff is determined by establishing a clearly defined hierarchy, understanding the strengths and specialties of each admin and maintaining effective communications between the admin team and Senior Partners. These days, the importance of being prepared is more valuable than ever. We have been shown in no subtle manner that the fundamental business environment we operate in can change entirely without forewarning. The cliched, go-to axiom “expect the unexpected” can be more accurately revised: “prepare for the unexpected.”

 According to attorney Sally Kane, business journalist, attorneys experience an amount enormous job stress, moreso than professionals in other fields. Due to prolonged stress, most attorneys will eventually be forced to cope with career burnout to one extent or another. Deadlines, billing pressures, client demands, long hours, changing laws, and other demands all combine to make the practice of law one of the most stressful jobs out there. Throw in rising business pressures, evolving legal technologies, and climbing law school debt and it’s no wonder lawyers are stressed.

One year after proposing amendments to the financial statements and other disclosure requirements related to the acquisitions and dispositions of businesses, in May 2020 the SEC adopted final amendments (see here for my blog on the proposed amendments HERE). The amendments involved a long process; years earlier, in September 2015, the SEC issued a request for public comment related to disclosure requirements for entities other than the reporting company itself, including subsidiaries, acquired businesses, issuers of guaranteed securities and affiliates, which was the first step culminating in the final rules (see HERE).

Now that the market can review and dissect two quarters of COVID-related disclosures and reporting companies are gearing up for third-quarter reporting, COVID disclosures are no longer pure speculation. Following the two official guidelines released by the SEC (Disclosure Guidance Topic No. 9A which supplemented the previously issued Topic No. 9), a new CD&I issued on COVID-19 executive employment benefits, and numerous unofficial statements and speeches on the topic, the investment community and reporting companies are navigating the areas that require the most attention and thoughtful disclosure. Not surprisingly, the areas requiring the greatest consideration are management, discussion and analysis (including human capital disclosures and forecasting), risk factors, and internal controls over financial reporting.

In March 2019, the SEC adopted amendments to Regulation S-K as required by the Fixing America’s Surface Transportation Act (“FAST Act”) (see HERE). Among other changes, the amendments allow companies to redact confidential information from most exhibits without filing a confidential treatment request (“CTR”), including omitting schedules and exhibits to exhibits. Likewise, the amendments allow a company to redact information that is both (i) not material, and (ii) competitively harmful if disclosed without the need for a confidential treatment request. The enacted amendment only applies to material agreement exhibits under Item 601(b)(10) and not to other categories of exhibits, which would rarely contain competitively harmful information.

International Business Operations In December 2019, the SEC Division of Corporation Finance issued CF Disclosure Guidance: Topic No. 8 providing guidance related to the disclosure of intellectual property and technology risks associated with international business operations. The global and technologically interconnected nature of today’s business environment exposes companies to a wide array of evolving risks, which they must individually examine to determine proper disclosures using a principles-based approach. A company is required to conduct a continuing analysis on the materiality of risks in the ever-changing technological landscape to ensure proper reporting of risks. To assist management in making these determinations, the SEC has issued additional guidance.

Major Changes for OTC Markets Companies Despite an unusual abundance of comments and pushback, on September 16, 2020, one year after issuing proposed rules, the SEC has adopted final rules amending Securities Exchange Act (“Exchange Act”) Rule 15c2-11. The primary purpose of the rule amendment is to enhance retail protection where there is little or no current and publicly available information about a company and as such, it is difficult for an investor or other market participant to evaluate the company and the risks involved in purchasing or selling its securities. The SEC believes the final amendments will preserve the integrity of the OTC market, and promote capital formation for issuers that provide current and publicly available information to investors.

Although many aspects of an IPO are unaffected by a pandemic, assuming the capital markets continue to have an appetite for public offerings, the grueling road show has gone virtual, and it may be here to stay. An old-fashioned road show involved an intense travel schedule and expensive setup. The new virtual road show can be completed in half the time and a fraction of the price, and interestingly, the IPO’s that have been completed since March 2020, have all priced their deals at the midpoint or higher of their ranges. The lack of face-to-face presentations is not hurting the deals.

 Economy Change is never invited and then welcomed with open arms. Change is inevitable, so it simply thrusts itself upon us. Facetime, Skype and various other audiovisual conferencing platforms were considered contingency options only a few months ago. They were used somewhat begrudgingly when flights were canceled or schedules conflicted. Although many forward-thinking micro-managers used them as primary forms of conferencing, there were plenty who did not. Those who once considered audiovisual conferencing as “second best” to the real thing have been forced to re-evaluate their perspective.

Pubco CEO, officers and directors fall into two camps: “Going public was the best decision we ever made,” and “If we knew then what we knew now, we would have stayed private.” There is a very simple reason that going public transactions like IPO’s and reverse mergers go bad. The control persons who decided to access the public markets were most likely authorities and experts in their respective fields – biotechnology, communications, transportation and entertainment. However, they lacked a fundamental understanding of what is involved in going public, and successfully staying public. Taking a private company public is nothing short of creating a new company on top of an existing company. The private company was built with careful planning, persistence, and the ability to adapt. The formation of the public version of the subject company requires just as much meticulous effort.

The NYSE MKT is the small- and micro-cap exchange level of the NYSE suite of marketplaces. The NYSE MKT was formerly the separate American Stock Exchange (AMEX). In 2008, the NYSE Euronext purchased the AMEX and in 2009 renamed the exchange the NYSE Amex Equities. In 2012 the exchange was renamed to the current NYSE MKT LLC. The NASDAQ and NYSE MKT are ultimately business operations vying for attention and competing to attract the best publicly traded companies and investor following. The NYSE MKT homepage touts the benefits of choosing this exchange over others, including “access to dedicated funding, advocacy, content and networking and the industry’s first small-cap services package.”

 The topic of reporting requirements and distinctions between various categories of reporting companies has been prevalent over the past couple of years as regulators and industry insiders examine changes to the reporting requirements for all companies, and qualifications for the various categories of scaled disclosure requirements. As I’ve written about these developments, I have noticed inconsistencies in the treatment of smaller reporting companies and emerging growth companies in ways that are likely the result of poor drafting or unintended consequences. This blog summarizes two of these inconsistencies.

 The SEC Division of Corporation Finance (CorpFin) reviews and comments upon filings made under the Securities Act of 1933 (“Securities Act”) and the Securities Exchange Act of 1934 (“Exchange Act”). The purpose of a review by CorpFin is to ensure compliance with the disclosure requirements under the federal securities laws, including Regulation S-K and Regulation S-X, and to enhance such disclosures as to each particular issuer. CorpFin will also be cognizant of the antifraud provisions of the federal securities laws and may refer a matter to the Division of Enforcement where material concerns arise over the adequacy and accuracy of reported information or other securities law violations, including violations of the Section 5 registration requirements. CorpFin has an Office of Enforcement Liaison in that regard

As merger and acquisition (M&A) transactions completed its most active year since the financial crisis, it is helpful to go back to basics. Activity has been prevalent in all market sectors, including large, mid and small cap and across all industries, including biotech, financial services, technology, consumer goods and services, food and beverage and healthcare, among others. Although I’ve written about M&A transactions multiple times, this will be the first time I’ve given a broad overview of the forms that an M&A transaction can take.

 On May 11, 2016, the Financial Crimes Enforcement Network (“FinCEN”) issued new final rules under the Bank Secrecy Act requiring financing institutions, including brokerage firms, to adopt additional anti-money laundering (AML) procedures that include specific due diligence and ongoing monitoring requirements related to customer risk profiles and customer information. In addition, the new rules require financial institutions to collect and verify information about beneficial owners and control person of legal entity customers.

Remarkably Effective and Widely Misunderstood Introduction A recent article in the Wall Street Journal by Ruth Simon revealed that, “Roughly a year after the passage of new rules making it easier for fledgling businesses to tap U.S. capital markets, just a handful of them have succeeded in doing so. A Phoenix-based startup that makes three-wheeled vehicles raised roughly $17 million through one such mini-IPO, in which small companies can raise as much as $50 million by issuing securities. Two other companies together have raised nearly $70 million for real estate investments, while a community bank with operations in three Southern states has issued stock for a merger deal.”

On July 30, 2018, the Financial Industry Regulatory Authority (FINRA) published a Special Notice seeking public comments on how FINRA can support fintech developments including those related to data aggregation services, supervisory processes, including with the use of artificial intelligence, and the development of a taxonomy-based, machine-readable rulebook. The Special Notice, and fintech in general, necessarily includes blockchain technology, a topic FINRA has been examining for a few years now. Last July, FINRA held a Blockchain Symposium to assess the use of distributed ledger technology (DLT) in the financial industry, and earlier in January 2017 FINRA issued a report entitled “Distributed Ledger Technology: Implications of Blockchain for the Securities Industry” on the topic.

According to Wikipedia, a rainmaker is a business person “who brings in new business and wins new accounts almost by magic.” Even if the sources of new business activity are not readily apparent, the definition goes on, rainmaking involves generating “substantial new business or additional cash flow from sources sometimes outside established business channels, sometimes by connecting with people in non-traditional or hidden markets.” The definition could easily include: “see also attorney Laura Anthony.” In a contemporary business context, the term rainmaker is applied almost exclusively to law firms. These attorney-closer hybrids are rare indeed, and without them even the most intelligent and innovative collectives of legal minds will never be matched with the appropriate clientele.

According to Wikipedia, a rainmaker is a business person “who brings in new business and wins new accounts almost by magic.” Even if the sources of new business activity are not readily apparent, the definition goes on, rainmaking involves generating “substantial new business or additional cash flow from sources sometimes outside established business channels, sometimes by connecting with people in non-traditional or hidden markets.” The definition could easily include: “see also attorney Laura Anthony.” In a contemporary business context, the term rainmaker is applied almost exclusively to law firms. These attorney-closer hybrids are rare indeed, and without them even the most intelligent and innovative collectives of legal minds will never be matched with the appropriate clientele.

The new Regulation A/A+, which went into effect on June 19, 2015, is now three years old and continues to develop and gain market acceptance. In addition to ongoing guidance from the SEC, the experience of practitioners and the marketplace continue to develop in the area. Nine companies are now listed on national exchanges, having completed Regulation A+ IPO’s, and several more trade on OTC Markets. The NYSE even includes a page on its website related to Regulation A+ IPO’s. As further discussed herein, most of the exchange traded companies have gone down in value from their IPO offering price, which I and other practitioners attribute to the lack of firm commitment offerings and the accompanying overallotment (greenshoe) option.

 Attorney Laura Anthony Analyzes the Crypto Debate Is it a security or is it a utility, currency, commodity or some other digital asset? That question has been continuously raised by those working with digital assets such as cryptocurrencies, virtual coins and tokens, including by digital asset issuers and companies that run platforms for the issuance or trading of such digital assets. Although the first and easy answer is that if a digital asset is being issued today, it is most assuredly a security upon issuance that needs to comply with the federal securities laws, the answer is not always that straightforward for digital assets that have been in the marketplace for a period of time, such as bitcoin and ether, or for new digital assets that are carefully being constructed to fall outside the purview of a securitized token.

 On April 3, 2018, Spotify made a big board splash by debuting on the NYSE without an IPO. Instead, Spotify filed a resale registration statement registering the securities already held by its existing shareholders. The process is referred to as a direct listing. As most of those shareholders had invested in Spotify in private offerings, they were rewarded with a true exit strategy and liquidity by becoming the company’s initial public float.

DLT involves a distributed database maintained over a network of computers where information can be added by the network participants. Each added layer of information or data is referred to as a block. The network participants can share and retain identical cryptographically secured information and records. DLT uses either a public or private network. A public network is open and accessible to anyone that joins, without restrictions. All data stored on a public network is visible to anyone on the network, although it is encrypted. 

More than a few unprofitable companies completed IPOs in 2019. The in-the-red frenzy fizzled out by the fall and some underwater issuers postponed or entirely scrapped their plans to go public. The topic has been beaten to death by financial wizards and industry analysts. Every conceivable opinion, outrage and examination has been chronicled and published. Now is the time to live and learn, then move forward.

 In the 4th quarter of 2018, the SEC finalized amendments to the disclosure requirements for mining companies under the Securities Act of 1933 (“Securities Act”) and the Securities Exchange Act of 1934 (“Exchange Act”). See http://securitieslaw-blog.com/2019/02/05/updated-disclosures-for-mining-companies/?hilite=%27mining%27. In addition to providing better information to investors about a company’s mining properties, the amendments were intended to more closely align the SEC rules with industry and global regulatory practices and standards as set out in by the Committee for Reserves International Reporting Standards (CRIRSCO). The amendments rescinded Industry Guide 7 and consolidated the disclosure requirements for registrants with material mining operations in a new subpart of Regulation S-K.

Laura Anthony, Founding Partner

Contact ALG Founder

Anthony LG LLC Corporate and Securities Law Firm

Going Public vs. Reverse Merger

Going Public Via Reverse Merger

A reverse merger transaction is one in which a private operating entity merges with a public shell company, resulting in the private operating company becoming public. Generally, the shareholders of the private operating company will exchange their ownership in the private company for a majority stake in the public shell company. A “shell company” is an entity that has no or nominal operations and no assets or assets consisting solely of cash and cash equivalents. A reverse merger is an alternative method of going public (as opposed to an IPO, DPO or private placement followed by the registration process).

A reverse merger is often structured as a reverse triangular merger. In that case, the public shell forms a new subsidiary which new subsidiary merges with the private operating business. At the closing, the private company shareholders still exchange their ownership for shares in the public company and the private operating business becomes a wholly owned subsidiary of the public company. The primary benefit of the reverse triangular merger is the ease of shareholder consents. That is because the sole shareholder of the acquiring entity is the public company. The directors of the public company can approve the transaction on behalf of the acquiring subsidiary, avoiding the necessity of meeting the proxy requirements of the Securities Exchange Act of 1934.

The advantages of a reverse merger revolve around time. A reverse merger transaction can be completed very quickly and efficiently. The disadvantages of a reverse merger generally revolve around undisclosed prior issues or liabilities with the public shell, including issues that could affect DTC eligibility. This primary disadvantage can be addressed by hiring competent securities counsel to assist with the due diligence process. Another disadvantage involves cost; a reverse merger transaction, although substantially quicker than an IPO, can cost substantially more. In addition to legal and accounting fees, a private entity must purchase the public shell itself.

Like any transaction involving the sale of securities, the issuance of securities to the private company shareholders must either be registered under Section 5 of the Securities Act or by subject to an available exemption from registration. Generally, shell companies rely on Section 4(2) or Rule 506 of Regulation D under the Securities Act for such exemption.

A reverse merger is a going public transaction but not a capital raising transaction.  Generally companies completing a reverse merger simultaneously complete a private placement transaction for fund raising.

Your Going Public Transaction with Us

In an initial public offering (IPO), a company goes public directly by filing an S-1 registration statement for the public sale of its stock. That sale of stock can be by the company using an underwriter, which is known as an IPO. Alternatively, many issuers are choosing to self-underwrite their public offerings, commonly referred to as a Direct Public Offering (DPO). But of course, the process is highly regulated and without experienced legal counsel can be difficult, expensive and time-consuming.

Pursuant to Section 5 of the Securities Act of 1933, as amended (“Securities Act”), it is unlawful to “offer” or “sell” securities without a valid effective registration statement, unless an exemption is available. Companies desiring to offer and sell securities to the public must file with the SEC and provide prospective investors all material information concerning the company and the securities offered. The Securities Act sets forth in-depth rules on what constitutes material information, and on what forms and in what format that material information must be disclosed.

Rule 404(a) of the Securities Act sets forth the basic requirements for a registration statement. Rule 404(a) reads in part:

“A registration statement shall consist of the facing sheet of the applicable form; a prospectus containing the information called for by Part 1 of such form; the information, list of exhibits, undertakings and signatures required to be set forth in Part II of such form; financial statements and schedules; exhibits; any other information or documents filed as part of the registration statement; and all documents or information incorporated by reference in the foregoing.”

Over the years the SEC has created and eliminated various registration forms. Currently all domestic issuers must use either form S-1 or S-3. Form S-3 is limited to larger filers with a minimum of $75 million in non-affiliate public float, among other requirements. All other issuers must use form S-1.

S1 Regulations

There are four primary regulations governing the preparation and filing of Form S-1:

(i) Regulation C – contains the general requirements for preparing and filing the Form S-1. Included within Regulation C are regulations and procedures related to (a) the treatment of confidential information; (b) amending a registration statement prior to effectiveness; (c) procedures to file a post-effective amendment; and (d) the “Plain English” rule

(ii) Regulation S-T – requires that all registration statements, exhibits and documents be electronically filed through the SEC’s EDGAR system and must include interactive data using the XBRL process.

(iv) Regulation S-K – sets forth, in detail, all the disclosure requirements for all the sections of the S-1. Regulation S-K is the who, what, where, when and how requirements to complete the S-1.

(v) Regulation S-X – sets forth the requirements with respect to the form and content of financial statements to be filed with the SEC. Regulation S-X includes general rules applicable to the preparation of all financial statements and specific rules pertaining to particular industries and types of businesses.

Both the Securities Act of 1933, as amended (“Securities Act”) and the Securities Exchange Act of 1934, as amended (“Exchange Act”) provide remedies to investors in the IPO and DPO process. The basic premise of such liability is that either an investor was not given an opportunity to review investment disclosure documents prior to making the investment, or such disclosure documents contained inaccurate information or failed to contain material information. The bottom line is that if an officer or director signs a registration statement which is filed with the SEC and which contains misstatements or fails to contain material information, they may be subject to liability on two fronts – from the SEC in an enforcement proceeding, and from individuals and entities in a private civil claim.

Private Placement

Private Placement Followed by Registration of Securities

A public company, by definition, has public shareholders. Reverse mergers, IPO’s and DPO’s all result in a public shareholder base. Another option for a company going public directly is to complete a private placement; selling shares to unaffiliated third parties and then filing an S-1 resale registration statement as to those shares. Each of these options results in an unaffiliated public shareholder base. Simply stated, all of these aforementioned processes result in a company going public.

The S-1 resale registration statement filed on behalf of selling shareholders contains substantially the same required information as an S-1 registration statement filed on behalf of the company itself.

The main benefit to a private company going public through the filing of an S-1 Registration Statement as opposed to a reverse merger is that the company does not have to be concerned about undisclosed, potential or contingent liabilities.  Moreover, the SEC rules relating to shell companies (such as Rule 144 and Rule 145) prevent the operating company’s shareholders from selling stock using the Rule 144 exemption for twelve months following the completion of the merger. Furthermore, companies completing a reverse merger may face reputational challenges.  Finally, if not completed correctly, the newly merged entity may face trading difficulties with either or both FINRA and DTC.

Listing on a National Exchange

Listing on a National Exchange

There are currently registered stock exchanges in the United States, however, the most common exchanges for small cap and middle market companies are the NYSE including the NYSE American and NASDAQ.  Both exchanges have quantitative and qualitative listing standards and ongoing corporate governance requirements for listed companies.  For a complete list of NYSE American listing requirements see my blog on the topic HERE and for a complete list of NASDAQ listing requirements see by blog HERE.  The attorneys at Anthony L.G. assist companies with the preparation for and application process to list on an exchange as well as compliance with ongoing listing requirements.

Finra and DTC

FINRA and DTC

For companies going public on the OTC Markets, following the effectiveness of the S-1 registration statement, the company will need to engage the services of a market maker to file a 15c2-11 application with FINRA to obtain permission to quote and trade the stock and to receive a trading symbol. FINRA is the self-regulatory body which overseas trading on the over-the-counter market. On the most basic level, FINRA issues trading symbols to company’s trading on the over-the-counter market (including the Pink Sheets, OTCQB and OTCQX).

The Depository Trust Company (DTC) provides the clearing and settlement services for all the electronic trading of securities in the United States. Over the past year, DTC eligibility has become a concern for many OTC issuers. The DTC has become active in reviewing the securities of issuers and requiring that an issuer be able to prove, to the DTC’s satisfaction, that all shares trading electronically are indeed legally entitled to do so. This includes shares that may have been issued in a predecessor company many years before and for which records may not be available.

Obtaining and maintaining eligibility is of the utmost importance for the smooth trading of an issuer’s float in the secondary market. Moreover, DTC eligibility is a prerequisite for OTC issuers’ shareholders to deposit securities with their brokers and have such securities be placed in street name.

Anthony L.G. stays current with all DTC issuer requirements to assist clients in avoiding unnecessary disruptions to their stocks trading activity and to remove DTC chills and locks whenever possible.

OTCQX Listing Requirements

The OTCQX listing requirements necessitates that a company meets the following:
  • A transfer agent that participates in the Transfer Agent Verified Shares Program.
  • Comply with SEC Reporting (Exchange Act reporting standard or Regulation A), International Reporting, Bank Reporting, or OTC Alternative Reporting Guidelines.
  • Audited financial statements that comply with US GAAP (for International and Alternative Reporting Companies listed on a Qualified Foreign Exchange, a valid auditing opinion) with a Balance Sheet dated within 15 months by a PCAOB auditor.
  • Have proprietary quotes by at least one Market Maker in OTC Link ATS (companies filing Form 211 shall have 3 business days to meet this requirement)
  • Have a minimum bid price of $0.25 per share and $10 million market capitalization on each day for the first 30 consecutive calendar days preceding Application Day. (exemptions for companies submitting Form 211 applications)
  • Have on-going operations and not be a shell company.
  • Not going through bankruptcy or reorganization.
  • Have at least 50 round-lot beneficial shareholders (each owning at least 100 shares).
  • Have a freely traded Public Float of 10% or more of total outstanding shares.
  • Obtain an OTCQX Sponsor
  • For International Reporting, comply with OTCQX Rules and publish required disclosures in English, as specified in 12g3-2(b).
  • Publish Annual reports, call reports and other disclosures required by bank regulators.

Corporate Governance requirements:

  • Have a board of directors with 2 independent directors
  • Have an audit committee with the majority being independent director
  • For further information view our page on OTCQX Requirements and application process.

    NASDAQ Capital Market Listing Requirements

    5505. Initial Listing of Primary Equity Securities

    A Company applying to list its Primary Equity Security on the Capital Market must meet all of the requirements set forth in Rule 5505(a) and at least one of the Standards in Rule 5505(b).

    (a) Initial Listing Requirements for Primary Equity Securities:

    (1) (A) Minimum bid price of $4 per share; or

    (B) Minimum closing price of $3 per share, if the Company meets the requirements of the Equity or Net Income Standards under Rules 5505(b)(1) or (b)(3), or of $2 per share, if the Company meets the requirements of the Market Value of Listed Securities Standard under Rule 5505(b)(2), provided that in either case the Company must also demonstrate that it has net tangible assets (i.e., total assets less intangible assets and liabilities) in excess of $2 million, if the issuer has been in continuous operation for at least three years; or net tangible assets in excess of $5 million, if the issuer has been in continuous operation for less than three years; or average revenue of at least $6 million for the last three years. A security must meet the applicable closing price requirement for at least five consecutive business days prior to approval.

    For purposes of this paragraph (B), net tangible assets or average revenues must be demonstrated on the Company’s most recently filed audited financial statements filed with, and satisfying the requirements of, the Commission or Other Regulatory Authority, and which are dated less than 15 months prior to the date of listing.

    (2) At least 1,000,000 Unrestricted Publicly Held Shares;

    (3) (i) At least 300 Round Lot Holders; and (ii) at least 50% of such Round Lot Holders must each hold Unrestricted Securities with a Market Value of at least $2,500; provided that (ii) shall not apply to a Company whose business plan is to complete one or more acquisitions, as described in IM-5101-2;

    (4) At least three registered and active Market Makers;

    (5) If the security is trading in the U.S. over-the-counter as of the date of application, such security must have a minimum average daily trading volume of 2,000 shares over the 30 trading day period prior to listing (including trading volume of the underlying security on the primary market with respect to an ADR), with trading occurring on more than half of those 30 days, unless such security is listed on the Exchange in connection with a firm commitment underwritten public offering of at least $4 million; and

    (6) In the case of ADRs, at least 400,000 issued.

    (b) Initial Listing Standards for Primary Equity Securities:

    (1) Equity Standard

    (A) Stockholders’ equity of at least $5 million;

    (B) Market Value of Unrestricted Publicly Held Shares of at least $15 million; and

    (C) Two year operating history.

    (2) Market Value of Listed Securities Standard

    (A) Market Value of Listed Securities of at least $50 million (current publicly traded Companies must meet this requirement and the price requirement for 90 consecutive trading days prior to applying for listing if qualifying to list only under the Market Value of Listed Securities Standard);

    (B) Stockholders’ equity of at least $4 million; and

    (C) Market Value of Unrestricted Publicly Held Shares of at least $15 million.

    (3) Net Income Standard

    (A) Net income from continuing operations of $750,000 in the most recently completed fiscal year or in two of the three most recently completed fiscal years;

    (B) Stockholders’ equity of at least $4 million; and

    (C) Market Value of Unrestricted Publicly Held Shares of at least $5 million.

    NYSE LISTING REQUIREMENTS

    Have at Least 400 Shareholders

    To qualify for NYSE listing, a company must have at least 400 shareholders who own more than 100 shares of stock, have at least 1.1 million shares of publicly traded stock and have a market value of public shares of at least $40 million. The stock price must be at least $4 a share. Initial public offerings, spin-offs from existing companies or affiliates need a market value of at least $100 million.

    Meet the Basic Earnings Standard

    In order to order to get listed on the NYSE, a company also must be profitable and it has to meet one of two basic earnings standards. The first is aggregate pre-tax income of $10 million for the previous three years, with at least $2 million in each of the two most recent years. An alternate is $200 million in global market capitalization. In each case, the company still has to meet the shareholding threshold.

    Global Considerations

    The NYSE has stricter standards for worldwide trading. The $4 share price and $100 million market value apply, but a company must have at least 2.5 million shares outstanding and 5,000 public shareholders. In the case of a non-American company whose home market does not have “registered” shareholders, the NYSE requires that a member brokerage firm attest to the depth of market and liquidity of the company’s stock.

    File an Application

    Assuming as company meets the required standard, getting listed on the NYSE is simply a case of filing an application with an agreement to meet NYSE guidelines and requirements. That also must include the articles of incorporation, company by-laws and resolutions, and information on the organization, including contact details for key executives and affirmation that none has a felony conviction. NYSE also requires a letter from security underwriters that the company meets listing standards.

    NYSE Can Reject Unsuitable Companies

    The NYSE has broad discretion in listing companies and will list only shares it deems suitable for the market’s auction trading process, in which buy and sell orders are matched on the exchange floor. It can apply more stringent criteria, even if a company meets the basic securities and financial criteria. A company that is accepted for listing can expect trading of shares to start in four to six weeks.

    OTCQB Listing Requirements

    Eligibility Standards

    To be considered for admission to OTCQB, a Company shall meet all the following conditions:

    1) Audited Financials. Audited annual financial statements must be prepared in accordance with U.S. GAAP or, for International Reporting Companies or Alternative Reporting Companies listed on a Qualified Foreign Exchange, IFRS or an IFRS equivalent

    2) Current Disclosure: Make current disclosure available pursuant to one of the qualified listed reporting standards: 

    3) Bid Price of $0.01. Have a primary class of securities with proprietary priced quotations published by a Market Maker in OTC Link ATS with a closing bid price of at least $0.01 a) on each of the 30 consecutive calendar days immediately preceding the Company’s application for OTCQB

    4) An exemption from Section 1.1(3) of these OTCQB Standards may be granted by OTC Markets Group in its sole and absolute discretion. Have at least 50 Beneficial Shareholders, each owning at least 100 shares.

    5) Have a freely traded Public Float of at least 10% of the total shares issued and outstanding of the class of security to be traded on OTCQB., exemption may be granted by OTC Markets Group in its sole and absolute discretion.

    6) Not be subject to any Bankruptcy or reorganization proceedings.

    7) Be duly organized, validly existing and in good standing under the laws of each jurisdiction in which the Company is organized or does business.

    8) Transfer Agent. A company incorporated in the U.S. or Canada must retain a transfer agent that participates in the Transfer Agent Verified Shares Program.

    Corporate Governance (Required for Alternative Reporting Standard Only).

    • Have a board of directors that includes at least two Independent Directors; and
    • Have an Audit Committee, a majority of the members of which are Independent Directors. 
    • At least two members of the Board of Directors and a majority of the members of the Audit Committee must satisfy the independence requirement within the later of 90 days after the Company begins trading on OTCQB or the time of the Company’s next shareholder meeting.

    Financial Reporting Requirements: a. SEC Reporting Companies must have filed all reports required to be filed on EDGAR. b. Regulation A Reporting Companies must have filed all reports required to be filed on EDGAR.

    OTC PINK Listing Requirements

    Requirements to use Form 211 | Going Public OTC Pink Sheets

    In general, a private company can go public if:

    • The private company has at least 25 non-affiliate shareholders who paid cash consideration for their shares at least 12 months prior to the Form 211 filing date;
    • The private company must have at least 1 million shares outstanding, of which at least 250,000 are free trading shares;
    • The private company must never have been a shell company; and
    • The private company has current public information available.

    NYSE ARCA Listing Requirements

    The NYSE ARCA caters to small, medium, and large cap companies, as well as Exchange-Traded Products (ETPs). The ETPs that the exchange supports includes: Exchange-Traded Funds (ETFs), Exchange-Traded Notes (ETNs), and Exchange Traded Vehicles (ETVs). They NYSE ARCA currently represents over 90% of all ETPs traded in the U.S.

    The listing standards for the NYSE ARCA are as follows:

    Basic Listing Standards

    • At least 500,000 publicly held shares and a market value of at least $3,000,000.
    • At least 800 public beneficial holders if the issuer has at least 500,000 and less than 1,000,000 shares publicly held, or a minimum of 400 public beneficial holders if the issuer has either:
      • At least 1,000,000 shares publicly held; or
      • At least 500,000 shares publicly held and average daily trading volume in excess of 2,000 shares for the six months preceding the date of application.
    • Net worth of at least $4,000,000.
    • Pre-tax income from continuing operations of at least $750,000 in the last fiscal year or two of the last three fiscal years.
    • The maintenance of at least $5 per share closing bid price for a majority of business days for the most recent six-month period prior to the date of application by the issuer. To meet this price requirement, the bid closing price must be at or above $5 per share at the time of application.

    Alternative Listing Standards

    • At least 1,000,000 publicly held shares and a market value of at least $15,000,000.
    • At least 400 public beneficial holders.
    • Net worth of at least $12,000,000.
    • The maintenance of at least $3 per share closing bid price for a majority of business days for the most recent six-month period prior to the date of application by the issuer. To meet this price requirement, the bid price must close at or above $3 per share at the time of application.
    • An operating history of at least three continuous years.

    NYSE American Listing Requirements

    Companies must meet minimum listing requirements that include a specific financial liquidity and corporate governance criteria. NYSE American also maintains the right to deny an application if they believe it is necessary to protect investors, even if all of the technical requirements have been met. Typically, the NYSE American would reject an application for the nature of the company’s business, regulatory history and future projections, and reputation of management. As one of the most prestigious exchanges to be listed on, the NYSE American affords its patron companies many opportunities not found elsewhere. To gain an initial listing, companies must meet one of the following standards: (variations for Standard 1, 2, 3 ,4a , 4b) Standard 1 :
    1. Pre-tax income of at least $750,000
    2. Market Value of Public Float of at least $3 Millions
    3. Stockholders Equity of $4Million
    4. Minimum Price of 3$
    Standard 2 :
      1. Market Value of Public Float of at least $15 Million
      2. Stockholders Equity of $4Million
      3. Minimum Price of 3$
      4. Operating History of 2 years
    Standard 3 :
      1. Market Cap of at least $50 Million
      2. Market Value of Public Float of $15 Million
      3. Stockholders Equity of $4 Million
      4. Minimum Price of 2$
    Standard 4 (a) (b) :
      1. Market Cap (a) $75 Million
      2. Total Assets and Total Revenue (b) of $75 Million
      3. Market Value (a/b) of $20 Million
      4. Minimum Price (a/b) of $3
    Companies are also required to meet one of the following standards: Public Sharelholder of  (option 1)800, (options 2)400,  (option 3) 400 Public Float of (option 1) 500,000, (options 2) 1,000,000 or (option 3) 500,000 or Daily Trading Volume 6 months prior (option 3 ) 2000 shares

    NASDAQ Global Select Listing Requirements

    Initial Listing Requirements for Primary Equity Securities

    For inclusion in the Global Select Market, a Company must meet all requirements in Rule 5315(e), all applicable requirements of Rules 5315(f)(1), 5315(f)(2) and 5315(f)(3) and all applicable requirements in the Listing Rules.

    However, if a Company is a closed end management investment company registered under the Investment Company Act of 1940, it must meet all requirements in Rule 5315(e), all applicable requirements in each of Rules 5315(f)(1) and 5315(f)(2), but not requirements of 5315(f)(3).

    (c) A closed end management investment company that is listed concurrently with other closed end management investment companies that have a common investment adviser or whose investment advisers are “affiliated persons” as defined in the Investment Company Act of 1940 (a “Fund Family”) shall be eligible if:

    (1) the total Market Value of Unrestricted Publicly Held Shares in such Fund Family is at least $220 million;

    (2) the average Market Value of Unrestricted Publicly Held Shares for all funds in the Fund Family is $50 million; and

    (3) each fund in the Fund Family has a Market Value of Unrestricted Publicly Held Shares of at least $35 million.

    (d) A business development company as defined in Section 2 of the Investment Company Act of 1940 must meet all requirements in Rule 5315(e), and all applicable requirements in each of Rules 5315(f)(1) and 5315(f)(2), but not the requirements in 5315(f)(3). In lieu of meeting Rule 5315(f)(3), a business development company must have a Market Value of Listed Securities of at least $80 million.

    (e) The Primary Equity Security shall meet all of the following:

    (1) If the Company is not listed on the NGM, a bid price of at least $4 per share;

    (2) At least 1,250,000 Unrestricted Publicly Held Shares;

    (3) Market Makers

    A Company that meets the requirements of the NGM Income Standard ( Rule 5405(b)(1)) or the NGM Equity Standard ( Rule 5405(b)(2)) shall have at least three registered and active Market Makers. Otherwise, a Company shall have at least four registered and active Market Makers;

    (4) If the security is trading in the U.S. over-the-counter market as of the date of application, such security must have a minimum average daily trading volume of 2,000 shares over the 30 trading day period prior to listing (including trading volume of the underlying security on the primary market with respect to an ADR), with trading occurring on more than half of those 30 days, unless such security is listed on the Exchange in connection with a firm commitment underwritten public offering of at least $4 million; and

    (5) In the case of ADRs, at least 400,000 issued.

    (f)

    (1) Ownership Requirement

    The Primary Equity Security shall meet no less than one of the following:

    (A) At least 550 Total Holders and an average monthly trading volume over the prior 12 months of at least 1,100,000 shares per month; or

    (B) At least 2,200 Total Holders; or

    (C) (i) A minimum of 450 Round Lot Holders; and (ii) at least 50% of such Round Lot Holders must each hold Unrestricted Securities with a Market Value of at least $2,500; provided that (ii) shall not apply to a Company whose business plan is to complete one or more acquisitions, as described in IM-5101-2.

    (2) Market Value Requirement

    The Unrestricted Publicly Held Shares shall meet one of the following:

    (A) A Market Value of at least $110 million; or

    (B) A Market Value of at least $100 million, if the Company has stockholders’ equity of at least $110 million; or

    (C) A Market Value of at least $45 million in the case of: (i) a Company listing in connection with its initial public offering; and (ii) a Company that is affiliated with, or a spin-off from, another Company listed on the Global Select Market; or

    (D) A Market Value of at least $70 million in the case of a closed end management investment company registered under the Investment Company Act of 1940.

    (3) Valuation Requirement

    A Company, other than a closed end management investment company, shall meet the requirements of sub-paragraph (A), (B), (C), or (D) below:

    (A) (i) Aggregate income from continuing operations before income taxes of at least $11 million over the prior three fiscal years, (ii) positive income from continuing operations before income taxes in each of the prior three fiscal years, and (iii) at least $2.2 million income from continuing operations before income taxes in each of the two most recent fiscal years; or

    (B) (i) Aggregate cash flows of at least $27.5 million over the prior three fiscal years, (ii) positive cash flows in each of the prior three fiscal years, and (iii) average market capitalization of at least $550 million over the prior 12 months and total revenue of at least $110 million in the previous fiscal year; or

    (C) (i) Average market capitalization of at least $850 million over the prior 12 months, and (ii) total revenue of at least $90 million in the previous fiscal year; or

    (D) (i) Market capitalization of at least $160 million, (ii) total assets of at least $80 million, and (iii) stockholders’ equity of at least $55 million.

    NASDAQ Global Market Listing Requirements

    Initial Listing Requirements and Standards for Primary Equity Securities

    A Company applying to list its Primary Equity Security on the Global Market shall meet all of the requirements set forth in Rule 5405(a) and at least one of the Standards in Rule 5405(b).

    (a) Initial Listing Requirements for Primary Equity Securities:

    (1) Minimum bid price of at least $4 per share;

    (2) At least 1,100,000 Unrestricted Publicly Held Shares;

    (3) (i) At least 400 Round Lot Holders; and (ii) at least 50% of such Round Lot Holders must each hold Unrestricted Securities with a Market Value of at least $2,500; provided that (ii) shall not apply to a Company whose business plan is to complete one or more acquisitions, as described in IM-5101-2;

    (4) If the security is trading in the U.S. over-the-counter market as of the date of application, such security must have a minimum average daily trading volume of 2,000 shares over the 30 trading day period prior to listing (including trading volume of the underlying security on the primary market with respect to an ADR), with trading occurring on more than half of those 30 days, unless such security is listed on the Exchange in connection with a firm commitment underwritten public offering of at least $4 million; and

    (5) In the case of ADRs, at least 400,000 issued.

    (b) Initial Listing Standards for Primary Equity Securities:

    (1) Income Standard

    (A) Annual income from continuing operations before income taxes of at least $1,000,000 in the most recently completed fiscal year or in two of the three most recently completed fiscal years;

    (B) Stockholders’ equity of at least $15 million;

    (C) Market Value of Unrestricted Publicly Held Shares of at least $8 million; and

    (D) At least three registered and active Market Makers.

    (2) Equity Standard

    (A) Stockholders’ equity of at least $30 million;

    (B) Two-year operating history;

    (C) Market Value of Unrestricted Publicly Held Shares of at least $18 million; and

    (D) At least three registered and active Market Makers.

    (3) Market Value Standard

    A Company listed under this paragraph does not also need to be in compliance with the quantitative criteria for initial listing in the Rule 5500 series.

    (A) Market Value of Listed Securities of $75 million (current publicly traded Companies must meet this requirement and the $4 bid price requirement for 90 consecutive trading days prior to applying for listing if qualifying to list only under the Market Value Standard);

    (B) Market Value of Unrestricted Publicly Held Shares of at least $20 million; and

    (C) At least four registered and active Market Makers.

    (4) Total Assets/Total Revenue Standard

    A Company listed under this paragraph does not also need to be in compliance with the quantitative criteria for initial listing in the Rule 5500 series.

    (A) Total assets and total revenue of $75 million each for the most recently completed fiscal year or two of the three most recently completed fiscal years;

    (B) Market Value of Unrestricted Publicly Held Shares of at least $20 million; and

    (C) At least four registered and active Market Makers.