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Non-Tech : The BBX is coming, time to get educated! -- Ignore unavailable to you. Want to Upgrade?

To: MarcG who wrote (7)	6/20/2002 1:03:32 PM
From: sepod	Respond to of 14

BBX – TRADING RULES June 20, 2002 On June 11th we looked at the proposed listing standards for the Bulletin Board Exchange (BBX), the trading market that is slated to replace the OTC Bulletin Board in 2003. (See BBX – A Better Bulletin Board?). As we saw, the BBX will impose new, more stringent listing requirements for former OTC Bulletin Board companies, including a public interest standard. But that will not be the only major change. The BBX also plans to establish a new trading environment, more akin to that utilized by Nasdaq. The new trading rules will be a hybrid of existing OTC Bulletin Board regulations, and Nasdaq practices. The following is a brief summary of those rules: Market makers on the BBX will be required to maintain continuous, two-sided markets, with quotes that are reasonably related to the market and generally do not lock or cross the market. What does this mean? In a two-sided market, market makers must quote both a bid and ask price for each security in which they make a market and to execute orders at those prices. A locked market occurs when the inside bid price equals the inside offer price in the same security, and a crossed market occurs when the inside bid is greater than the inside offer price of a security. BBX market makers will be required to report their short interest on a monthly basis. Nasdaq market makers already must comply with this requirement. Short interest represents the total number of shares of a security that have been sold short by customers and securities firms, and that have not been repurchased to settle those short positions. This way, investors in BBX companies will have an idea of how vigorously a BBX company is being shorted in any given month. That should help alleviate concerns that have dogged some OTC Bulletin Board companies. Disgruntled investors (and sometimes management) occasionally claim that large, undisclosed short positions have depressed the stock of OTC Bulletin Board companies. On several occasions, there have been claims that the short positions were established improperly – through so-called “naked shorting” (which takes place when the short seller does not own the stock) – or that the short position vastly exceeds the number of shares outstanding. BBX stocks would be subject to the same trading halt rule that applies to Nasdaq SmallCap and National Market stocks. That would afford the NASD authority to suspend trading in a BBX security while material news from the issuer was being disseminated. Trading halts generally last 30 minutes and are intended to give all investors an equal opportunity to evaluate news and make buy, sell, or hold decisions. Under existing Nasdaq rules, trading halts can be extended if Nasdaq requests additional information from a company, the company is not current in its filing requirements, or the company has not complied with listing requirements. Presumably, the BBX will have discretion to impose similar standards. BBX will retain certain OTC Bulletin Board rules. Market makers will be required to quote prices in a designated minimum size, depending on the quoted price of the BBX issue. In another holdover from the OTC Bulletin Board, a 100% maintenance margin requirement will be imposed on BBX issues. BBX companies will be required to comply with the SEC’s Penny Stock Rules, whenever a stock would qualify as a “penny stock” absent BBX listing. This differs from Nasdaq securities, which gain an exemption from the penny stock rules by virtue of their Nasdaq listing. The term "penny stock" refers to low-priced (below $5), speculative securities, that are not traded on national exchanges like Nasdaq, the New York Stock Exchange and the American Stock Exchange. Before a broker can sell a penny stock, SEC rules require the brokerage firm to approve the customer for the transaction and receive from the customer a written agreement to the transaction. In addition, the firm must give the customer a document describing the risks of investing in penny stocks, tell the customer the current market quotation, and disclose the compensation the firm and its broker will receive for the trade. The firm also is required to send monthly account statements showing the market value of each penny stock in the customer’s account. If all goes according to plan, Nasdaq also will launch an automated delivery and negotiation system, as well as a separate automatic execution system for the BBX. This would offer BBX traders speedy and efficient access to quotes and markets. NASD Regulation and Nasdaq plan to step up the enforcement and monitoring process, to assure compliance with the new rules and thwart anti-competitive practices. Stay tuned.