ATTENTION TRADERS OF OTC BULLETIN BOARD AND PINK SHEETS STOCKS
The SEC has reproposed amendments to Rule 15c2-11 which could have a very
negative effect on the OTC markets. Legitimate market makers may stop
making markets, liquidity will decrease, and fraud may increase.
This is not the goal of the proposal of course, but this is the likely
result. While the SEC should obviously continue taking steps to reduce
penny stock fraud, the current proposals look like a step in the wrong
direction.
The reproposed amendments to Rule 15c2-11 would require all
broker-dealers to review current issuer information before publishing
priced quotations for a security. (The rule's piggyback provision would
be eliminated.) In addition, broker-dealers publishing priced quotations
for a security would be required to review current information about the
issuer annually and upon the occurrence of specified events. The main
difference between this proposal and the original proposal is that some
larger or more actively traded companies would be excluded from the
rule's coverage.
While this proposal may sound good at first, it will probably end up
scaring away market makers. Why? Because if market makers become
responsible for learning about the stocks they make a market in, and are
supposed to avoid stocks where there may be fraud, then market makers
will fear getting sued by investors if a stock they make a market in
turns out to be a scam, a fraud, or just a failure. Why take this chance?
It might be safer just to abandon these OTC stocks. Additionally, the
time and expense required for market makers to research all the OTC
stocks they make a market in could also scare them away. And with less
market makers, liquidity decreases and spreads may widen. Plus, with
legitimate market makers out of the way, it becomes easier for the sleazy
market makers to manipulate stock prices.
Market makers should not be given the burden of seeking out stock fraud.
Their role is to provide liquidity. Regulators should be the ones who try
to reduce stock fraud. (As well as StockDetective.com.)
To learn more about the proposal, please see:
The SEC's proposal: sec.gov
|
