Quotation System for OTC Equity Securities

FINRA is soliciting comment on a proposal to provide for a FINRA-sponsored inter-dealer quotation facility for all OTC equity securities.  Over the past several years, there have been instances in which market-wide trading halts for all OTC equity securities have been put into effect by FINRA out of concern regarding a substantial lack of transparency due to limited quotation information for these securities.

These trading halts followed system failures on an inter-dealer quotation system.  While FINRA declared market-wide trading halts in these previous instances of systems failures, FINRA believes that market-wide trading halts should be avoided, and is proposing to operate a facility capable of serving as an alternative inter-dealer quotation system for OTC equity securities in the event of failure of another inter-dealer quotation system.  FINRA believes that operation of an inter-dealer quotation system capable of serving as an alternative display facility should obviate the need for market-wide trading halts in all but extraordinary circumstances.

Specifically, FINRA proposes that the FINRA-operated inter-dealer quotation system, the OTC Bulletin Board Service (OTCBB), be expanded to include a broader universe of securities eligible for quotation so that the OTCBB can operate as an alternative inter-dealer quotation system for any OTC equity security quoted on any other member inter-dealer quotation system.

FINRA is proposing to amend Rule 6530 to expand the universe of securities that are eligible to be quoted to include any OTC equity security—irrespective of whether the issuer is a reporting company.  FINRA believes that this approach is appropriate—particularly to optimize the potential usefulness of the FINRA facility as an intra-day alternative inter-dealer quotation system for any OTC equity security quoted on another inter-dealer quotation system.  In concert with this change, FINRA proposes to indicate whether an issuer is a timely reporting company, a delinquent reporting company, or a non-reporting company, using publicly available information.

FINRA also is proposing to rename OTCBB as “Over-the-Counter Display Facility” or “ODF.”  While the types of eligible securities will be expanded, FINRA envisions that the general functionality of the ODF system will be similar to the features currently offered by OTCBB.  Member firms may use the system to enter, update, and display quotations in individual securities on a real-time basis.  Such quotation entries may consist of a priced bid and offer; an unpriced indication of interest (including “bid wanted” or “offer wanted” indications); or a bid/offer accompanied by a modifier to reflect unsolicited customer interest.

The system would continue to be a display-only system, and would not provide for communication linkages or execution functionality between members.  FINRA also is proposing that the current position fee applicable to quoting on the OTCBB be eliminated for the ODF.

Comments must be received by November 29, 2016.  For more guidance related to this topic, please refer to FINRA Regulatory Notice 2016-34.