Notice to Members 99-58

SEC Grants Exemption From Rule 15c2-11 For Securities Being Removed From The OTCBB Pursuant To The NASD Eligibility Rule

Published Date:

SEC Grants Exemption From Rule 15c2-11 For Securities Being Removed From The OTCBB Pursuant To The NASD Eligibility Rule

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Executive Summary

The Securities and Exchange Commission (SEC) issued a letter on June 3, 1999, granting an exemption from SEC Rule 15c2-11 under the Securities Exchange Act of 1934 (Exchange Act) for securities that were quoted on the OTC Bulletin Board® (OTCBB) on or before January 4, 1999, that will no longer be eligible to be quoted on the OTCBB due to the phase-in implementation of National Association of Securities Dealers, Inc. (NASD®) Rule 6530 (the Eligibility Rule).1 A copy of the SEC's letter is attached to this Notice.

Questions regarding this Notice may be directed to the OTC Compliance Unit at (301) 208-2802.

Discussion

On January 4, 1999, the SEC approved amendments to NASD Rules 6530 and 6540 (Rules) to limit quotations on the OTCBB to the securities of companies that report their current financial information to the SEC, banking, or insurance regulators.2 The new Rules are intended to ensure that investors in OTCBB securities have access to reliable and current information about the issuers of these securities.

The new Eligibility Rule was effective immediately for securities not quoted on the OTCBB on January 4, 1999. Issuers whose securities were quoted on the OTCBB as of January 4, 1999, and have continued to be quoted will be required to comply with the Eligibility Rule according to a phase-in schedule starting in July 1999 and continuing through June 2000 (see Notice to Members 99-43 to view the phase-in schedule). The delayed effectiveness of the Rule is designed to enable broker/dealers, investors, and issuers to take appropriate action.

The Eligibility Rule provides that, in order for a domestic issuer to continue being quoted on the OTCBB, the issuer must be required to make periodic filings with the SEC, or with banking or insurance regulators, and be current with those filings. The NASD will affix a modifier "E" on the security symbol of any security issuer that does not meet the requirements of the Eligibility Rule. The addition of the modifier will be publicly reported on the OTCBB Daily List, which is available on the OTCBB Web Site at www.otcbb.com. The "E" also will be evident to the quoting broker/dealers when they access the security on the Nasdaq Workstation II®.

Once an issuer is deemed not to be in compliance with the Eligibility Rule, the security may continue to be quoted on the OTCBB for a 30- or 60-calendar day grace period from date the "E" modifier was appended on the security symbol, depending on the type of issuer.3 After the grace period, quotations in non-compliant securities will not be permitted on the OTCBB, and member firms will be prohibited from quoting the issuer's security on the OTCBB. The NASD announced approval of the OTCBB Eligibility Rule and the phase-in schedule in Notice to Members 99-15, and announced a modified phase-in schedule in Notice to Members 99-43.

The exemption granted by the SEC from Rule 15c2-11 will permit broker/dealers to publish or submit quotations in other quotation media, including the National Quotation Bureau's Pink Sheets, for securities being removed from the OTCBB pursuant to NASD Rule 6530 subject to the following conditions:

1. A broker or dealer must have in its records the information specified in paragraphs (a)(5)(i), (a)(5)(ii), and (a)(5)(viii) of Rule 15c2-11;
2. The security was quoted in the OTCBB from January 4, 1999, until the date of its removal4;
3. The NASD has appended the covered security's symbol to indicate that it is not compliant with Rule 6530; and
4. A broker or dealer must have published quotations in the covered security in the OTCBB on at least 12 business days during the preceding 30 calendar days, with no more than four consecutive business days without quotations.

The exemption will expire when the implementation of the Eligibility Rule is complete.5

To publish or submit quotations for a security pursuant to this exemption, a broker/dealer must comply with NASD Rule 6740 and, during the 30- or 60-day period that the security's symbol reflected on the OTCBB is appended with the "E" modifier, complete and mail the Exemption Form to:

OTC Compliance Unit
NASD Regulation, Inc.
9513 Key West Avenue
Rockville, MD 20850
or fax it to (301) 208-2806

A copy of the Exemption Form is attached to this Notice and is also available on the OTCBB Web Site.

The form must be received by the OTC Compliance Unit during the 30- or 60-calendar day grace period commencing after the "E" is appended on the security symbol.

15c2-11 Exemption Request Form - Eligibility Rule

The information that must be provided on this form includes:

 

  • The issuer's name and the issuer's predecessor in the event of a merger or reorganization within the previous 12 months;



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  • The issuer's address;



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  • A contact name and telephone number for the issuer;



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  • The nature of the issuer's business;



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  • The symbol(s) for the security(ies); and



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  • The security's CUSIP number (if applicable).



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  • If a broker/dealer is initiating a quotation with a priced entry, the firm must specify the basis for determining the price and the factors considered in making that determination.



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  • If the broker/dealer's initial quotation does not include a priced entry, the firm must supplement its filing before inserting a priced entry.



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  • The form must be signed by a principal of the member firm.

 

Endnotes

1 Letter from Larry E. Bergmann, Senior Associate Director, SEC, to Alden S. Adkins, General Counsel, NASD Regulation, Inc., dated June 3, 1999.

2 See Release No. 34-40878 (January 4, 1999), 64 FR 1255 (January 8, 1999) (File No. SR-NASD-98-51).

3 Issuers that file with the SEC will have a 30-day grace period before they can no longer be quoted on the OTCBB; issuers that file with other regulators will have a 60-day grace period.

4 Therefore, if the SEC suspends trading in the security pursuant to Section 12(k) under the Exchange Act, this exemption does not apply to that security.

5 After that time, broker/dealers that wish to publish a quotation in another quotation medium in an OTCBB security that becomes ineligible for the OTCBB system will be required to comply with Rule 15c2-11. The SEC has recently reproposed amendments to Rule 15c2-11. See Release No. 34-41110 (February 25, 1999), 64 FR 11124 (March 8, 1999). Broker/dealers would be required to comply with any new provisions of Rule 15c2-11, and this exemption may be modified or revoked upon adoption of any amendments.

EXEMPTION FORM

Rule 15c2-11 Exemption Request Form (NASD Eligibility Rule 6530)

On June 3, 1999, the Securities and Exchange Commission (SEC) granted an exemption from SEC Rule 15c2-11 for securities that were quoted on the Over-the-Counter Bulletin Board® (OTCBB) on or before January 4, 1999. These are securities that will no longer be eligible to be quoted on the OTCBB due to the phase-in implementation of NASD Rule 6530 (the Eligibility Rule). Broker/dealers that meet the exemption conditions are required to submit this form to the OTC Compliance Unit of the NASD Regulation, Inc., Market Regulation Department (Unit) in order to be considered for the exemption.

Please complete this form as outlined below, then mail the completed form to: OTC Compliance Unit, NASD Regulation, Inc., 9513 Key West Avenue, Rockville, MD 20850; or fax it to (301) 208-2806. This form must be received by the OTC Compliance Unit during the 30- or 60-calender day grace period commencing after the "E" is appended on the security symbol.

If you have questions about filing this form or the conditions surrounding this exemption, please call the Unit at (301) 208-2802.

If after review, the Unit clears the broker/dealer to publish or submit quotations in another quotation medium, the Unit will notify the quotation medium you specify below that you are permitted to enter quotations on the security(ies) requested in this form on the date it is removed from quotation on the OTC Bulletin Board.

Check the applicable quotation medium(s): __Pink Sheets __Other (specify) _____________

Provide the required information requested below (please submit a separate form for each issuer):

1. Exact name of issuer and predecessor (if any) ____________________________________________
2. Address of principal executive offices ___________________________________________________
3. Telephone number of principal executive offices __________________________________________
4. Name and title of issuer contact _______________________________________________________
5. Nature of the issuer's business ________________________________________________________
6. Security Symbol(s) Complete Title and Class of Security(ies) to be Quoted CUSIP (if assigned)
 
     
     
     
7. Price of initial resumed quotation entry:
 
Bid __________ Ask ___________ __ No price at this time
If you are entering a bid and/or ask price now, you must also provide a clear statement of the following information:
The basis upon which the priced entry was determined:
 
 
The factors considered in making that determination:
 
 

Certification:

The undersigned, by signing below, affirms that (i) the broker/dealer filing this form has in its records the information specified in paragraphs (a)(5)(i), (a)(5)(ii), and (a)(5)(viii) of Rule 15c2-11; (ii) the security(ies) listed on this form was(were) quoted in the OTCBB from January 4, 1999, until the date of its removal1, (iii) the security's symbol has been appended with an "E" modifier to indicate that it is not compliant with Rule 6530; (iv) the broker/dealer filing this form published quotations in the covered security in the OTCBB on at least 12 business days during the preceding 30 calendar days, with no more than four consecutive business days without quotations; and (v) that the information supplied in this form is reasonably current. Detailed information regarding this exemption from Rule 15c2-11 is available by calling the OTC Compliance Unit at (301) 208-2802.

Name and signature of member firm principal overseeing the submission of this form:

Name: Title:
Signature: Date:
Firm Name:
Telephone Number: MPID:

1 Therefore, if the Commission suspends trading in the covered security pursuant to Section 12(k) under the Exchange Act, this exemption does not apply to that security.