This following e-mail was sent unsolicited to me. Seems to have implications for GRNO's stock.
=== This editorial is distributed as a financial community service by
eWireNews.
***************
NATIONAL QUOTATION BUREAU URGES MASS ACTION BEFORE MONDAY!
<http://www.sec.gov/rules/propridx.htm>
[Rel. No. 34-39670; File No. S7-3-98]
E-MAIL: rule-comments@sec.gov
(Some members of the SEC staff are believed by some observers to be seeking
to banish the emerging growth capitalization process in contravention of
Congress by literally "regulating" trading in such companies to death.ÿÿ A
current proposal that could effectively reduce market maker participation to
zero, widen spreads and eliminate liquidity almost slipped past with little
fanfare.ÿ However, comments may be registered until Monday, and a savior,
the National Quotation Bureau, has stepped forth, asking private investors,
shareholders, brokers and public company executives to urgently and
overwhelmingly e-mail the SEC to insure that the Commissioners are made
aware in no uncertain terms that it is a bad idea.)
*****
SEC Rule Proposal affecting Issuers, Investors and Brokers
by Cromwell Coulson
Chairman, National Quotation Bureau*
cromwell@bloomberg.net (Coming this week: cromwell@nqb.com)
The Securities and Exchange Commission (the "SEC") is soliciting comments on
proposed changes to 15c2-11 (Release No. 34-39670 available at
sec.gov, the rule that governs
publication of quotes in securities that are not listed on Nasdaq or an
exchange.
Persons wishing to submit written comments should send an URGENT E-MAIL to
Jonathan G. Katz, Secretary, Securities and Exchange Commission, Mail Stop
6-9, 450 Fifth Street, N.W., Washington, D.C. 20549 at:
rule-comments@sec.gov . All comment letters should refer to File No.
S7-3-98; this file number should be included on the subject line if E-mail
is used. Comments must be received on or before Monday April 27, 1998.
Interested issuers, investors and brokers should also contact their
Congressman, Senator or trade association so that their opinion on the rule
proposal is made known.
*****
While the SEC's intentions are good, the National Quotation Bureau believes
the rule will have unintended consequences that will be highly detrimental to
investors, issuers and the secondary markets. If the proposed rule is enacted,
there will be:
1)ÿ No prices in the Pink Sheets or on the OTC Bulletin Boardƒ
The National Quotation Bureau has been informed by some of our largest
market makers that they will not publish prices in the Pink Sheets or on the
OTC Bulletin Board if the rule proposal is passed.
2) Huge potential liability for OTC market makers
The rule proposal will create an ongoing liability for market makers in all
corporate securities that are traded OTC. Market makers will be liable for
third party actions by investors if there is any issuer fraud or manipulation
in the securities they trade. Even if the market maker had nothing to do with
the fraud or manipulation. The rule would not only cover securities quoted in
the Pink Sheets and on the OTC Bulletin Board, but all corporate securities
traded over the counter such as foreign equities, high yield bonds, corporate
bonds and convertible securities. Market makers will be the new deep pockets
for class action lawyers.
*****
The Commission re-introducing a proposal that was overwhelmingly opposed by
the vast majority of public comment letters in 1991. The new proposal is more
burdensome than the 1991 proposal. In 1991, according to the SEC proposing
release "The vast majority of commenters opposed the Commissions proposal.
These commenters believed that the proposal would discourage or even eliminate
market making for many non-Nasdaq securities. They claimed that the proposed
amendments would have impaired liquidity, reduced market value and harmed the
capital raising process. Several commenters believed that the proposed changes
would have hurt the market for the securities of many substantial and
legitimate companies, but would have little effect on fraud in worthless
stocks."
***
== The first defense against rigged markets is a competitive and efficient
market
SEC Rule 15c2-11 presently requires that the market maker, which introduces a
security into an inter-dealer quotation medium, must review and vouch for the
security. After thirty days, any market maker can quote the security without
having to perform the review process. Currently, once a security is in the
system, competition and ease of entry are promoted. The new rule proposal will
drastically change the market structure.
The new rule proposal requires every market maker to review and vouch for a
security when they initiate quotations and on annual basis if they publish a
price. The proposed rule requires market makers to have a reasonable basis
under the circumstances for believing the issuer information is accurate and
current in all material respects, and that it is obtained from reliable
sources. Market makers will have an obligation to ascertain if there are
indications of whether potential or actual fraud or manipulation may be
present. The review process applies to both SEC filing and non-filing issuers.
Not only does the rule cover quotations in the Pink Sheets and on the OTC
Bulletin Board but OTC markets in corporate bonds and foreign securities.
***
== A good idea with bad consequences
The rule proposal is based on a simple idea; "Market makers should know the
securities they trade." The National Quotation Bureau agrees that all market
participants should be as informed as possible so the market price reflects
all available information. It is the consequence of the rule that worries us.
If a market maker uncovers indications of fraud or manipulation, the firm is
supposed to stop trading the security. The market maker cannot have their
viewpoint reflected in the market by adjusting their quotations. The market
maker has no powers under the rule proposal to stop the parties that are
defrauding or manipulating. The market maker is not required to contact
regulators. The rule proposal makes the legitimate market maker walk away and
the crime continues. Imagine if basketball rules were structured so that when
a foul is committed, any honest player must quit the game and leave the court.
The bad guys would have a field day. Basketball needs referees to enforce the
rules of the game and securities trading needs to have rules enforced by
regulators. The National Quotation Bureau believes that rule proposals should
concentrate on speeding up the regulator's whistle and creating harsher
penalties for rule breakers.
***
== The Consequences
The potential liability from an implied right of action by investors will
drive legitimate firms from making markets in OTC securities and give an
incentive for the remaining market makers to refrain from publishing prices.
It is much easier to manipulate markets when there is no competition or
transparency. The crooks will have free reign as the honest players exit the
business.
Investors will suffer from illiquid, opaque OTC markets. Legitimate investors
and shareholders will be harmed. Substantial regulatory costs for market
makers will be passed on to investors in the form of wider spreads and less
liquidity. Competition will diminish, as fewer reputable firms are willing to
trade OTC securities. Transparency will decrease, as fewer market makers are
willing to publish prices. Some securities may disappear from the public
markets.
Issuers will have less liquid and transparent markets for their securities.
The cost of capital will rise if there is not an efficient secondary market
for small or troubled companies. Legitimate capital sources for small or
troubled companies will dry up. Market makers will be less inclined to quote
new securities. The good companies are forced to pay for others misdeeds.
Market Makers will have substantial regulatory costs and potential liability
for third party actions. Market makers will be liable for the accuracy and
reliability of issuer information, even if the information was filed with the
SEC.
A competitive and transparent market should be available for all securities
and regulators should be given the tools to punish any entity that attempts to
manipulate that market or defraud investors. Fraud occurs across all markets.
Centennial Technologies Inc. (CENL) was listed on the New York Stock Exchange.
Stratton Oakmont was lead managers in twenty-seven stock offerings according
to Securities Data Company; all of which were listed on Nasdaqƒ . On February
26th, an officer of A.R. Baron & Co. was convicted of twenty-five charges
including enterprise corruption, scheming to defraud, falsifying business
records, perjury, and manipulating prices of eight Nasdaq listed companies.
Forcing issuers to provide financial disclosure does not prevent fraud.
Comparator Systems Corp. (IDID) and Systems of Excellence Inc. (SEXI) both
filed with the SEC. The issuers, promoters and retail brokerages that commit
micro-cap fraud are violating and ignoring existing securities laws. Placing
higher regulatory and liability burdens on legitimate market makers who have
no relationship with the issuers, promoters or retail brokers is not the
answer. The market maker's role is to find a price point where supply equals
demand. If there are falsehoods in the marketplace that are distorting the
supply and demand, the entities that are lying should be punished, not the
honest participants in the marketplace.
As long as securities exist, investors will have a need to buy or sell them.
If regulation increases the cost of quoting securities in the OTC market,
market makers will pass on the cost to investors in the form of wider spreads
and less liquidity for all OTC securities. Issuers and investors will seek
other trading forums with less regulatory overhead such as issuer web sights
or offshore market makers. The public is not benefited by a rule that creates
a black market.
While the current proposal is the wrong answer to a legitimate problem, the
end result of the proposal should be rules and regulations that work. The best
way to control fraud is to concentrate on the following areas:
***
== Education; increase investor awareness through education and disclosure.
Efficiency; increase the competition, ease of entry, transparency and
efficiency while lowering costs to investors of OTC trading. The National
Quotation Bureau has proposed to automate our service to increase the
transparency and efficiency of OTC markets.
***
== Enforcement; give enforcement agencies the tools and staffing to keep the
markets honest.
== Regulation should protect investors from those who wish to defraud them
while
not limiting their opportunities.
The National Quotation Bureau views the SEC proposal as an opportunity to
create regulations that will work in stopping micro-cap fraud. All interested
parties should comment on the proposal. Comment letters should not just reject
the SEC proposal but offer alternative, viable solutions. Extensive comment
and input from issuers, investors and brokers will create regulations that
improve the quality of OTC markets
Comments must be received on or before Monday April 27, 1998.
******
(*) ABOUT THE NATIONAL QUOTATION BUREAU:
Since 1913, when it was formed through the merger of two quotation services,
the NQB has been publishing information for the over-the-counter ("OTC")
securities market. Our core business has been publishing quotations of
competitive market makers in OTC securities in the National Quotation
Service (the "NQS"). The NQS was published weekly until the 1920's.
Initially, it reported market quotations for firms in five eastern cities.
Over time, through advancements in communications technology, the service
expanded to over fifty cities. The NQB products and methods of delivery have
remained essentially the same for the past sixty years.
Listing privileges are only available to registered broker-dealers. In the
past, broker-dealers wanting to list in the NQS had to satisfy financial net
worth standards and disclosure requirements. They had to provide financial
information and references from banks and two New York Stock Exchange member
firms. Firms had to provide ten-year histories of each partner, officer,
principal stockholder and trader. A statement of clearance arrangements was
also required.
The establishment of the U.S. Securities and Exchange Commission (the
"Commission") and the NASD through the Securities Act of 1933 (the "Securities
Act"), the Securities Exchange Act of 1934 (the "Exchange Act") and the
Maloney Act amendments to the Exchange Act in 1938, created a system to
regulate and oversee broker-dealers and the OTC market. At the outset, the NQB
imposed higher standards than the Commission or the NASD on market makers. In
the early sixties, the listing service was opened to any broker-dealer
registered with the Commission and thus by default any NASD member. The NQB
was owned at that time by Commerce Clearing House.
Current Publications. Our main product is a quotation medium, the NQS, which
is composed of four sections: the Pink Sheetsr, the Yellow SheetsT, the
Foreign Sheets and the Partnership Sheets. The Pink Sheets are the definitive
directory of all OTC equities. The Pink Sheets are the exclusive source of
quotations in over 2,000 equity securities. The Pink Sheets have market maker
quotations in 3,100 securities that are also listed on the OTCBB. They also
serve as a reference work for symbol and CUSIPr data for all the equities
listed on NASDAQr and the OTCBB.
The Yellow Sheets are a quotation publication for all taxable debt. They
contain listings in 2,350 corporate, high yield, convertible and foreign
bonds. The Foreign Sheets are a publication covering foreign securities and
ADRs that trade in the United States. The Partnership Sheets publish non-firm
indications of interest in Direct Participation Program interests (the "DPP").
The NQS is available electronically through vendors such as Bloomberg, Reuters
and ADP. The electronic product is a static page, updated nightly, of what is
available in the print publication.
Other Current Services. The NQB provides other valuable services to the
financial community and the public. We publish the NQB Stock Summary and the
NQB Bond Summary, directories of securities traded in the U.S. markets. They
include price histories, corporate addresses, phone numbers, transfer agents,
trustees, ticker symbols, coupons, maturity dates, mergers, splits, dividends,
reorganizations, bankruptcies and other corporate actions.
The NQB collects pricing for the securities listed in the NQS and provides
securities pricing services so brokers, banks and other custodians can value
customer positions. All the major pricing services use the NQB as a source to
price Non-NASDAQ equities. The NQB provides public companies with information
on who is making a market in their securities and historical price
information. The NQB library department provides research for banks, brokers,
lawyers, accountants and the public on historical prices and other
information.
The NQB is the public's source for 15c2-11 fillings by broker dealers. The
NASD provides us with copies of all 15c2-11 filings, including financials for
companies that are not Edgar filers. We provide copies to the public upon
request.
Historical Regulatory Climate. Federal securities laws and NASD rules govern
the publication of quotations by broker-dealers in the NQS. In the past, the
NQB reviewed Rule 15c2-11 filings, and forwarded copies to the NASD and the
Commission. With the adoption of NASD Rule 6740 in 1990, the NASD assumed
responsibility for reviewing broker-dealer's Rule 15c2-11 forms. The NASD
informs the NQB of broker-dealers that are clear to submit quotations in a new
security. The NQB receives from the NASD copies of all 15c2-11 forms and the
supporting financials if the company is not an Edgar filer. As a result, the
NQB is a comprehensive public depositary for 15c2-11 filings and provides
copies to the public upon request.
The NQB listings department reviews submissions of quotations by customers to
check if the NASD has cleared the broker or if the quotations are qualified
under exemptions such as Rule 15c2-11(f)(1), (2), (3), (4) or (5). The NQB
informs broker-dealers that wish to submit quotations in unqualified or new
securities that they must first file a Form 15c2-11 with the NASD. The NQB
notifies customers that they must remove their quotations from the NQS if the
Commission suspends trading in a security or the security has been de-listed
from an exchange or NASDAQ and is no longer eligible under an exemption from
Rule 15c2-11(f)(1) or (5). The NQB enjoys a good working relationship with the
Market Regulation Division of NASD Regulation (the "NASDR").
In terms of content, we now provide Cusipsr, issuer telephone numbers, 52-week
high/low, previous week volume, high/low and last, 15c2-11 piggyback eligible
notation, market maker symbol, ADR country, depositary, industry, and ratio of
outstanding to underlying shares.
Proposed Further Changes. The changes to the NQS have increased competition
among market makers and the availability of information. The NQB would like to
go further and make use of advanced technology further to increase
competition, transparency and fairness in the trading of non-NASDAQ, OTC
securities. Advancements in technology, and accompanying changes in the
regulatory structures, suggest the need for a thorough review of the rules
and regulations pertaining to non-NASDAQ OTC equities.
Briefly, we propose to automate and supplement our current offerings. The
NQS is currently a reference work and phone book of market makers in
over-the-counter ("OTC") securities. Our subscribers use their telephones
for price discovery and negotiation. The electronic NQS would create an
electronic bulletin board and e-mail facility to replace the telephone
process in the OTC market. If the NQS were automated, the broker-dealers
would benefit from efficiency. The public would benefit from competition and
transparency. Regulators would benefit from an electronic audit trail.
===========================
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