Proposed amendments to the listing rules for the OTCQX Best Market are likely to benefit international companies. The rules, which will become effective from January 1, 2017, should make it easier for Canadian and other foreign companies to establish a secondary market in their shares for U.S. investors.

For historical reasons, an OTC listing had come to be synonymous with penny stocks. The earliest OTC precursor, Roger Babson’s National Quotation Bureau (NQB), published a directory of broker-dealer quotations on slips of pink paper: the notorious “Pink Sheets”. Today, the OTC Markets Group is a different animal. It still lists penny stocks. However, it has surpassed the NYSE and NASDAQ in the number of non-penny stocks listed, according to OTC Markets (http://dtn.fm/gI9ar).

Listed companies on OTC Markets Group’s platform are organized into three markets: OTCQX, OTCQB, and Pink. To qualify for the OTCQX Best Market, companies must meet high financial standards, follow best practice corporate governance, demonstrate compliance with U.S. securities laws, be current in their disclosure, and be sponsored by a professional third-party advisor known as a Principal American Liaison (PAL). Penny stocks, shells, and companies in bankruptcy cannot qualify for OTCQX.

The OTCQB Venture Market is meant for early-stage and developing U.S. and international companies that are not yet able to qualify for OTCQX. And the Pink Open Market lists foreign companies that may need to limit their disclosure, penny stocks, and shells, and distressed, delinquent, and dark companies not willing or able to provide adequate information to investors.

Companies listed under the OTCQX Best Market fall into three categories: U.S. community banks, U.S. companies, and international companies. OTCQX International is reserved for companies that are already listed on a qualified foreign stock exchange that wish to have a U.S. listing. Two amendments to the qualifying rules are likely to lead to more international listings.

• The requirement to retain a Principal American Liaison (PAL) on an ongoing basis will be scrapped. Now it will be possible simply to have a qualified attorney, investment bank, or the ADR bank act as the OTCQX Sponsor during the initial qualification process. Consequently, the annual PAL letter will no longer be needed, nor will companies be required to provide an annual Issuer Compliance Statement to their PAL.

• The requirement to be included in a Recognized Securities Manual in order to qualify for Blue Sky Manual Exemption is likely to be removed. The OTC Markets Group is in discussions with the North American Securities Administration Association (NASAA) and state regulators to gain recognition for OTCQX for the purposes of “Blue Sky Manual Exemption” for secondary trading.

The proposed changes will, undoubtedly, offer international companies easier access to the U.S. capital markets.