OTC Market (Microcap Stock) – Changes to SEC Rule 15c2-11
INTRODUCTION
On September 28, 2021, amendments to Exchange Act Rule 15c2-11 became effective. These regulatory changes prohibit broker-dealers such as IBKR from displaying or submitting quotes (i.e., bids or offers) for securities of issuers that have not met public reporting requirements. The amendments to the Rule effectively eliminate the ability of market makers to quote in OTC securities of issuers that fail to keep certain information current and make that information publicly available. We expect that this will result in a significant reduction in the liquidity of these products. Additionally, certain securities will be reclassified to the OTC “Grey Market” tier. Broker-dealers are prohibited from publishing quotes for Grey Market securities and these securities may become completely illiquid as a result.
We provide additional information in the FAQs below.
FAQs
Q: Why is the SEC mandating these changes?
A: The SEC believes that retail investors are the primary participants in the OTC market. While many issuers of quoted OTC securities publicly disclose current information, other issuers publish limited or stale information or do not publish required information at all. The SEC has indicated that a lack of current, publicly available information about these issuers may disadvantage retail investors and the SEC is addressing the issue by eliminating displayed quotes on the affected issuers.
Q: How will the amendments to Rule 15c2-11 change the OTC market?
A: Effective September 28, 2021, the Rule requires that current information about an issuer be publicly available for a security to become quoted initially and remain quoted on an ongoing basis, subject to certain limited exceptions. Quotations submitted on an “unsolicited” basis will still be permitted under the amended Rule for securities in certain OTC Markets tiers, but insiders and affiliates will be subject to additional limitations discussed below.
Q: How are the OTC Markets tiers changing?
A: OTC Markets is reclassifying certain issuers in its various market tiers in accordance with the Rule.
- No change is anticipated for securities that remain classified in the OTCQX, OTCQB, or Pink Current market tiers.
- Many stocks are being moved to the Pink Limited and Expert Tier and designated by OTC Markets as “unsolicited quotes only.” Clients can close these positions by placing orders online. Opening orders in these positions cannot be accepted online or by phone.
- No public quotations are permitted for securities classified in the Grey market tier.
For further information, see https://www.otcmarkets.com/files/15c2-11%20Tier%20Chart.pdf
Q: How can I determine if the security I want to trade is "unsolicited quotes only?"
A: OTC Markets publishes a daily list of "unsolicited quotes only" stocks at the bottom of their 15c2-11 resource page.
Q: What if I am holding a security that has been classified to the Grey Market?
A: If you purchased a stock in your IBKR account that becomes “Grey Market” classified, you will be allowed to maintain or transfer the position. OTC Markets will not publish quotations for securities classified as Grey Market after September 28th and you may be unable either to exit or increase your position online.
Q: How are orders for stocks that are subject to the Rule routed and filled?
A: If the order is for a stock designated as “unsolicited quotes only,” the order will not be displayed to the public and will be filled against the best available bid or offer on the market center. Also, there will be limited liquidity for “unsolicited quotes only” stocks because Interactive Brokers participates in fewer market centers for these stocks.
Q: Where can I find relevant information?
A: Please refer to the following links for additional information: