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FINRA

 

For Release:
Contact:
Thursday, December 11, 1997
Nancy A. Condon - (202) 728-8379

 

More information about NASD investor protection initiatives


NASD Announces Changes of Micro-Cap Market

Washington, D.C.--The National Association of Securities Dealers, Inc. (NASDâ) today announced that its Board of Governors has approved a series of proposed changes for the OTC Bulletin Boardâ and the OTC market.

 

The principal changes, which are subject to approval by the Securities and Exchange Commission (SEC), would enhance investor protection by significantly increasing the amount of timely and accurate information about the companies that are quoted on the Bulletin Board. They would also require brokers to take additional steps prior to recommending or conducting a transaction in an OTC security.

 

The NASD will now seek comment from investors, regulators, and other groups on each of the three proposals, prior to submission to the SEC. The NASD proposals will:

  • Allow only those companies that report their current financial information to the SEC, banking, or insurance regulators to be quoted on the Bulletin Board. The rule proposal will provide for a phase-in period for those securities already quoted on the OTC Bulletin Board.
  • Require brokers, before they recommend a transaction in an OTC security, to review current financial statements on the company they are recommending.
  • Prior to the initial purchase of an OTC security, require that every investor receive a standard disclosure statement (prepared by the NASD) emphasizing the differences between OTC securities and other market-listed securities.

The OTC Bulletin Board is a quotation service that displays real-time quotes, last sale prices, and volume information in domestic securities. Eligible securities include national, regional, and foreign equity issues, warrants, units, and American Depositary Receipts (ADRs) not listed on any other U.S. national securities market or exchange. Unlike The Nasdaq Stock MarketSM or The New York Stock Exchange where individual companies apply for listing on the market – and must meet and maintain, strict listing standards – individual brokerage firms, or market makers, apply for permission to quote specific securities on the Bulletin Board.

 

Today, more than 6,800 securities are quoted on the Bulletin Board, of which about 50 percent currently report their financial information to the SEC. Under the new proposals, and after a phase-in period for existing Bulletin Board issuers, all companies that do not report to the SEC, bank, or insurance regulators would be eliminated from the Bulletin Board. These companies would be eligible to be quoted in other mediums, such as the Pink Sheets.

 

In March 1997, the SEC said that beginning in April 1998, foreign securities will have to be fully registered with the SEC to remain quoted on the Bulletin Board.

 

"There has been a dramatic increase in the number of micro-cap securities in the public market place. These measures are designed to ensure that the level of integrity that exists in other parts of the market is achieved in the smaller capitalized section as well," said Frank G. Zarb, NASD Chairman, Chief Executive Officer, and President.

 

Zarb added that the NASD is also considering adopting additional changes, such as seeking the authority for the NASD to halt trading in Bulletin Board securities under certain circumstances, including when a foreign regulator issues a quote halt in the stock for regulatory purposes.

 

The National Association of Securities Dealers is the largest securities-industry self-regulatory organization in the United States. Through its subsidiaries, NASD Regulation, Inc., and The Nasdaq Stock Market, Inc., the NASD develops rules and regulations; provides a dispute resolution forum; conducts regulatory reviews of members’ activities; and designs, operates, and regulates securities markets all for the benefit and protection of investors.