Four Steps to Going Public on the OTCQX Marketplace

May 27th, 2015

5-27-15-OTC.pngOn February 23, FirstAtlantic Financial Holdings, Inc., the holding company for FirstAtlantic Bank in Jacksonville, Florida, became the first bank to become publicly traded on OTCQX, the top marketplace for established, investor-friendly U.S. and international companies in the U.S. unlisted market.

Since then, three more private banks have effectively “gone public” on OTCQX, providing liquidity to existing shareholders while leveraging the OTCQX platform to increase their visibility in the public markets: First Priority Financial Corp. of Malvern, Pennsylvania, Paragon Commercial Corp. of Raleigh, North Carolina, and PBB Bancorp of Los Angeles.

As private banks seek the benefits of public trading, more are turning to the OTCQX marketplace which offers most of the benefits of a U.S. stock exchange listing without the high cost and additional disclosure obligations.

In this article, I’ll discuss the step-by-step process for getting traded on OTCQX and what banks can do to help maximize their trading in the public markets.

First, get your financial statements in order. One of the major positive features of OTCQX for Banks is that it allows banks to use their existing regulatory reporting standards to qualify. Securities and Exchange Commission (SEC) reporting banks must simply be current in their reporting to the SEC while banks with SEC registered securities that report to a bank regulator can make the past two years of reports available to investors through OTC Markets Group’s OTC Disclosure & News Service.

Non-SEC reporting banks must provide the past two years of annual audited consolidated financial statements in accordance with U.S. GAAP, interim financial statements and any press releases or other material news announcements they have made.

To continue trading on OTCQX, banks are required to remain compliant and current in their financial and regulatory reporting to their bank regulator or the SEC and to make timely disclosures about material news events such as dividend announcements, mergers, acquisitions, tender offers, stock splits and management changes.

Next, distribute shares to investors. Nowadays, banks can go public on the OTCQX marketplace one of two ways: either via a traditional SEC registered offering, also known as an Initial Public Offering (IPO), or what is called a “Slow PO,” in which previously restricted shares are made available for public trading after SEC registration or a certain seasoning period.

With the passage of Regulation A+ by the SEC on March 25, private banks will soon be able to raise up to $50 million in an SEC exempt offering in any 12-month period. Those securities will be free trading on day one. Certain restrictions will apply.

Banks should keep in mind that OTCQX requires companies have a minimum of 50 beneficial shareholders, each owning at least 100 shares of the company’s stock.

Third, make your shares tradable. To qualify for trading on OTCQX, banks must appoint a “corporate broker,” a Financial Industry Regulatory Authority (FINRA) member broker-dealer approved by OTC Markets Group, to serve as their market maker and advisor. The corporate broker or another market maker will file what is called a Form 211 with FINRA to allow the bank’s securities to be publicly quoted on OTCQX.

The Form 211 will include information about the bank and its securities, as well as current financial statements, the name of the bank’s SEC registered transfer agent and a CUSIP number from Standard & Poor’s, www.cusip.com. Upon approval of the Form 211, FINRA will assign the bank a trading symbol.

The bank will also want to apply for “DTC eligibility” through a Depository Trust & Clearing Corporation (DTCC) participant that will allow its shares to be electronically transferred between brokerage accounts and, hence, more easily tradable.

At the same time, the bank should submit an application to trade on OTCQX and make sure their financial statements are posted and publicly available for investors on OTC Markets Group’s website.

And lastly, begin trading! The entire process from appointing a corporate broker and submitting an OTCQX application to receiving an approval and trading symbol from FINRA typically takes two to four months.

Once the process is complete and FINRA approval has been obtained, a market maker—often the bank’s corporate broker—will enter a quotation on its securities on OTCQX. For the first 30 days, the market maker that filed the Form 211 has an exclusive market in the bank’s securities. After that time, the stock is “piggyback qualified,” meaning other market makers can enter proprietary quotes for the bank’s securities.

But the process doesn’t end there! Once a bank is publicly traded, it should remain current in its disclosure requirements on OTCQX.

Banks may also wish to create a separate investor relations section on their website or a separate portal for investors with information about their shares, the latest press releases, financial filings and an investor contact. Always remember to include your stock symbol and OTCQX marketplace designation so investors know where your securities are traded.

mchou

Maggie Chou is an assistant vice president of OTC Markets Group Inc., which operates the OTCQX, OTCQB and Pink financial markets. She can be reached at 212-896-4473, Maggie@otcmarkets.com or on LinkedIn.