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Microcap & Penny Stocks : DIGITCOM (DGIV-OTC-bb)Information Thread -- Ignore unavailable to you. Want to Upgrade?

To: Dolfan who wrote (498)	7/8/1999 10:21:00 PM
From: Howard C.	Read Replies (1) \| Respond to of 530

Summary of Rule 15c2-11 Reproposal Problem Quotations can be integral to fraudulent schemes involving microcap securities. Retail brokers "hyping" a microcap security may refer to a market maker's quotation when representing the security's value to a potential customer. The Commission is concerned that many market makers for unlisted securities may publish quotations without reviewing current financial and other information about the issuer. Microcap securities often are thinly traded and their issuers have minimal or no assets. Many of these securities trade in the unlisted over-the-counter market, i.e., they are not listed on an exchange or Nasdaq, but are quoted in systems like the NASD's OTC Bulletin Board or the National Quotation Bureau's "Pink Sheets." Response In February 1999, the Commission reproposed amendments to Rule 15c2-11 under the Exchange Act to help curtail abuses in the offer, sale and trading of microcap securities. The amendments are intended to have broker-dealers review fundamental information about the security's issuer before they publish quotations. The amendments also will help to improve the quality of information about smaller, lesser-known issuers and foster greater access to this information by investors. A prior version of the amendments was proposed in February 1998. The comment period for the reproposal expires 30 days after its publication in the Federal Register. How Rule 15c2-11 Works Now Rule 15c2-11 requires broker-dealers to review current information about the issuer before publishing quotations for that issuer's securities. Broker-dealers must have a reasonable basis for believing that the information is accurate and was obtained from a reliable source. After one broker-dealer has published quotations for a security for at least 30 days, other broker-dealers can publish quotations for the security without reviewing information about the issuer (i.e., they can "piggyback" onto the quotes of the first market maker). Broker-dealers thereafter can quote indefinitely without reviewing any issuer information (unless the Commission suspends trading in the security). Reproposed Amendments The reproposed amendments make significant changes to the scope of Rule 15c2-11 to focus on the type of quotations and securities that are used in fraud schemes. For example, the reproposal will require the first broker-dealer to review the specified issuer information before initiating a priced or unpriced quotation for an unlisted OTC security. Thereafter, any broker-dealer publishing a priced quotation for the security for the first time must review current information about the issuer (i.e., "piggybacking" will be eliminated). A broker-dealer publishing priced quotations also will have to review the issuer information annually. The reproposal will require broker-dealers to document their Rule 15c2-11 review and make a record of any significant relationships they have with the issuer or others, including the receipt of any compensation to make a market. Also, the reproposal focuses Rule 15c2-11 on OTC microcap securities by excluding the securities of larger issuers. The information that broker-dealers must review covers issuers that file periodic reports with the Commission (i.e., reporting companies), those issuers that file periodic reports with other government agencies, and those issuers that do not file any periodic reports (i.e., non-reporting companies). The information about reporting companies is readily accessible through the Commission's EDGAR system. For non-reporting companies, broker-dealers will have to obtain more information than Rule 15c2-11 currently requires, including more information about the issuer's insiders, control persons, and promoters, and about recent significant events involving the issuer. Broker-dealers will have to provide the information to customers and other broker-dealers upon request, as well as to any information repository. The reproposal establishes a procedure for recognizing information repositories to collect and distribute Rule 15c2-11 information. The reproposal targets the unlisted microcap securities market. By enhancing the information reviewed by market makers and narrowing the scope of the Rule, the reproposal should provide more efficient and effective mechanisms to deter fraud and manipulation in the OTC market.