otcbb to the BBX is going to be great! BBX after markets & you can SHORT them & Companies are going to have to have shareholder votes on certain matters that they are getting away with now.
BBX Frequently Asked Questions
(Updated December 12, 2002)
[Question #20 was added on January 7, 2003]
General Questions
Application Process
Questions on the Application
Listing Requirements
Business Requirements
Filing Requirements
Numeric Requirements
Corporate Governance Standards
Shareholder Rights
Public Interest Standard
Marketplace Rules
Trading Symbols
BBX Trading System
General Questions
What is the BBX?
The BBXSM will be a new listed market for small companies that will eventually replace the OTC Bulletin Board (OTCBB). BBX companies will have to meet many of the corporate governance requirements required of NASDAQ-listed companies, but there will be no financial requirements for listing. That is, BBX companies will not have to meet minimum share price, market capitalization, or shareholder equity requirements. The higher listing standards, a fully automated execution system, and improved marketplace supervision will improve the transparency and efficiency of the market, and offer better investor protection and a better opportunity for small companies to raise equity finance.
When is the BBX expected to launch?
The BBX is scheduled to launch in the fourth quarter of 2003, pending approval by the Securities and Exchange Commission (SEC).
What will happen to the OTCBB?
The current OTCBB will eventually be replaced by the BBX. To ensure a smooth transition to a listed-market environment, the OTCBB will operate simultaneously with the BBX for six months. This period is designed to provide sufficient time to submit and process applications for the BBX, without a halt in OTCBB quoting. Once a company begins trading on the BBX, however, simultaneous quotation on the OTCBB and BBX will not be permitted. At the end of the six-month parallel period, the OTCBB will cease operation.
What will happen to OTCBB securities that are not listed on the BBX?
OTCBB securities that do not transition to the BBX or another listed market may continue to be quoted on the OTCBB for six months after the launch of the BBX. Once the OTCBB ceases operation, market participants may choose to move their positions in those securities to another over–the-counter service.
How can I learn more about the BBX?
To speak with staff regarding the BBX or to request more information, call (877) BBX-1001. If you would like to be updated with the latest BBX developments via email, please sign up to be on the BBX mailing list by sending an email to bbxinfo@bbxchange.com.
During the Summer and Fall of 2002, BBX staff held issuer education forums throughout the country to discuss the listing qualifications, application process, and BBX marketplace rules. If you did not get a chance to attend a forum and would like us to schedule one in your area, please contact us. If there is enough interest, we would be happy to visit additional cities or revisit major cities.
The Application Process
How does a company list on the BBX?
In order to be listed on the BBX, all issuers, including OTCBB issuers, will be required to submit a listing application. Once this application is approved, the issuer will enter into a listing agreement with the BBX.
Will issuers be required to go through a market maker to list on the BBX? Will market makers file Form 15C-211 on behalf of BBX issuers?
No, issuers will not be required to go through a market maker to list on the BBX. Each issuer will apply for listing directly to the BBX. Market makers will not submit Forms 15c2-11 for trading securities on the BBX. Since market makers will continue to quote in BBX securities, issuers will be required to have at least one market maker agree to maintain a quote in its security once it is listed on the BBX.
How do I obtain an application, and when will the BBX start accepting them?
The BBX is currently working with the SEC to establish a process whereby we can begin accepting applications. As soon as we get SEC approval to begin accepting applications, we will immediately make them available on the BBX website as well as send out application kits in the mail to all current OTCBB issuers and other parties that have requested them. If you would like to receive an application, send an email to bbxinfo@bbxchange.com and you will be placed on the BBX mailing list.
Who will review the applications?
A team of specialists from the NASDAQ Listing Qualifications Department will review all BBX applications.
How long is the application review process and when will BBX respond regarding the acceptance of an application?
NASDAQ Listing Qualifications will try to respond to applications within 45 days. While this is the target turnaround, the current volume of applications and particulars of a given application could prolong the response time in individual cases.
Do I have to be in compliance with all of the BBX listing standards before I submit my application?
No, you may submit an application to the BBX even though you are not currently compliant with all BBX listing standards. A company will not be listed on the BBX, however, until they are in full compliance.
Questions on the Application
The application asks for a Standard Industrial Classification (SIC) Code, a SEC File Number, and a Central Index Key (CIK) Number. Where can I find these?
The SIC Code can be found on the cover of an original SEC Registration Statement. The SEC File Number and CIK Number can be found on EDGAR filings.
When listing a history of officers and directors on the application, how far back must a company go?
Companies should make a reasonable effort to list as much detail as possible.
Should contact information for corporate officers and directors include business or private residence information?
Please provide business contact information on the application for officers and directors. Where business information is not available or current, please include private residence.
Listing Requirements
What are the listing standards for the BBX?
The proposed BBX listing requirements have been created to provide an opportunity for the largest number of current OTCBB issuers to begin trading in the new listed environment, while at the same time offering a full complement of qualitative standards to provide enhanced protection to investors. Under BBX listing requirements, companies must meet qualitative standards, but do not have to meet financial or minimum share price standards. Specifically, the BBX proposes to require:
Business Requirements:
The company must be engaged in a legitimate, lawful business
Filing Requirements:
Registration under the Securities Exchange Act of 1934 (34 Act) and current in SEC filings;
Dissemination of annual reports (10K reports) and availability of quarterly reports (10Q reports)
Numeric Requirements:
100 round-lot shareholders;
200,000 shares in the public float;
One market maker
Corporate Governance Standards:
One independent director on Board of Directors;
An audit committee comprised entirely of independent directors;
An audit committee charter;
An outside auditor subject to a peer review program that is comparable to the American Institute of Certified Public Accountants’ (AICPA) program
Shareholder Rights:
Annual shareholder meetings
Prohibition against disenfranchising the rights of existing shareholders;
Shareholder approval for large, below-market issuances of stock; certain kinds of acquisitions; stock option plans for officers and directors; and changes of control
Public Interest Standard:
A review of all officers, directors and 10% shareholders for past regulatory and legal issues
Business Requirements
Will shell companies be allowed on the BBX?
No, shell companies will not be allowed on the BBX. BBX companies must be legitimate, lawful businesses.
Will investment companies be allowed on the BBX?
Yes, investment companies will be allowed on the BBX, provided that they register under the Investment Company Act of 1940 and meet all other applicable standards pursuant to BBX proposed rules.
How will BBX staff distinguish between companies that are considered “shells” and those that are legitimate companies?
Each application will be analyzed on a case-by-case basis. BBX staff will look at the facts and circumstances surrounding each company, but generally will require that companies have legitimate business operations.
Will development stage companies be allowed on the BBX?
Each application will be analyzed on a case-by-case basis, but a company that has a clear product under development would not be rejected from the BBX simply because that product was not yet ready for the market.
Will companies with a going concern opinion be prohibited from listing on the BBX?
No, a going concern opinion will not prevent a company from being approved for listing on the BBX, provided all listing requirements are met.
Filing Requirements
Must BBX-listed issuers be registered under Section 12(b) of the 1934 Act? What if my company is a 12(g) registrant?
Companies currently registered under 12(g) of the 1934 Act may now apply to the BBX. However, NASDAQ is currently undergoing a process of exchange registration, and if and when it does become an exchange, BBX applicants will have to file a Form 8-A with the SEC to change their status from a 12(g) company to a 12(b) company. BBX staff will alert BBX companies at such time as this may be required, and will assist them in this process.
Will banks be required to file public reports?
Yes, banks will be required to meet the same listing requirements as other issuers, including the requirement to file periodic public reports (forms 10K and 10Q). Banks will have to register their securities with the SEC, but may file their reports with another regulatory body, such as the Federal Deposit Insurance Corporation (FDIC). Call reports are not sufficient to meet this filing requirement.
What are the requirements for a foreign company to list on the BBX? Are they the same as those for U.S. companies?
Foreign companies must either file domestically as a U.S. company with the SEC, or they must file with the SEC using Form 20-F. Foreign companies must meet the same listing standards required of U.S. companies. In certain circumstances, a company may petition NASDAQ for an exemption from a particular qualitative listing requirement if complying with the NASDAQ rule is contrary to generally accepted business practices of that country. Exemption requests will be reviewed on a case-by-case basis.
Can issuers distribute their annual reports electronically or do they have to be mailed?
Issuers can send annual reports to shareholders electronically if they have received prior written permission from the shareholder. Otherwise, print copies of annual reports must be delivered to each shareholder to comply with the BBX rule.
Numeric Requirements
What is the 100 round lot shareholder requirement? Are restricted shares allowed in counting toward this requirement?
Each company must have at least 100 round lot shareholders (one round lot is equal to 100 shares). Restricted shares qualify for the calculation of 100 round lot shareholders. The shares of officers and directors also count.
How does a company determine if it has 200,000 shares in the public float?
The public float requirement is calculated by taking the total number of shares outstanding and subtracting the shares held by officers, directors and 10% shareholders.
What evidence does a company need to show on the application that they have secured at least one market maker?
Companies need only have confirmation that at least one market maker will participate in their security. A letter from a market making firm – indicating that it plans to make a market in that particular stock— is sufficient to meet this requirement. Please note that there is no 15c2-11 process on the BBX.
Corporate Governance Standards
What is the definition of an Independent Director?
The BBX will use the definition found in NASD Rule 4200(a)(14), which currently reads:
"Independent director" means a person other than an officer or employee of the company or its subsidiaries or any other individual having a relationship which, in the opinion of the company's board of directors, would interfere with the exercise of independent judgment in carrying out the responsibilities of a director. The following persons shall not be considered independent:
(A) a director who is employed by the corporation or any of its affiliates for the current year or any of the past three years;
(B) a director who accepts any compensation from the corporation or any of its affiliates in excess of $60,000 during the previous fiscal year, other than compensation for board service, benefits under a tax-qualified retirement plan, or non-discretionary compensation;
(C) a director who is a member of the immediate family of an individual who is, or has been in any of the past three years, employed by the corporation or any of its affiliates as an executive officer. Immediate family includes a person's spouse, parents, children, siblings, mother-in-law, father-in-law, brother-in-law, sister-in-law, son-in-law, daughter-in-law, and anyone who resides in such person's home;
(D) a director who is a partner in, or a controlling shareholder or an executive officer of, any for-profit business organization to which the corporation made, or from which the corporation received payments (other than those arising solely from investments in the corporation's securities) that exceed 5% of the corporation's or business organization's consolidated gross revenues for that year, or $200,000, whichever is more, in any of the past three years;
(E) a director who is employed as an executive of another entity where any of the company's executives serve on that entity's compensation committee. The BBX will use the same definition used by the NASDAQ Stock Market, which is currently being amended. The revised definition will be available on the BBX Web site when it is available.
What are the requirements for the composition of the audit committee?
The Sarbanes-Oxley Act requires that listed companies have an audit committee comprised entirely of independent directors. The BBX will enforce this requirement, but proposes that a single director may act as the whole independent audit committee.
The BBX rules require that auditors be peer reviewed by an accredited review body. What is an acceptable accredited review body?
The peer review should be comparable to AICPA standards included in Standards for Performing on Peer Reviews as codified in the AICPA’s SEC Practice Section Reference Manual, and the peer review program should be subject to oversight by an independent body comparable to the organizational structure of the Public Oversight Board as codified in the AICPA’s SEC Practice Section Reference Manual. New measures are being undertaken, however, to create a specific audit oversight board for all exchange-listed companies. If and when this oversight board is established, BBX will require auditors be reviewed by this board.
Shareholder Rights
What is the quorum for an annual shareholder’s meeting?
At least one third of the total shares outstanding must be represented at the annual meeting to be considered a quorum for purposes of meeting the BBX requirement.
Is it permissible to submit proxies in lieu of attending the meeting?
Yes, it is permissible to attend by proxy.
Is there still a requirement for an annual shareholder meeting if one person holds more than 50% of the outstanding shares?
Yes, BBX staff believes there is a benefit of human assembly and that each shareholder should be given the opportunity to physically address management.
Are Web cast shareholder meetings acceptable?
Yes, under the BBX rules Web cast shareholder meetings are acceptable under the condition that all participants have the opportunity to address and question management. Issuers should be aware, however, that some state laws may prohibit Web cast shareholder meetings.
What is considered a “large, below-market issuance” with respect to the shareholder approval requirement?
Shareholder approval is required for any share issuance greater than 20% of the pre-transaction total shares outstanding, if they are sold at a discount to the greater of book or market value.
What kinds of acquisitions require shareholder approval?
Any acquisition that requires 20% or more of the outstanding stock will require shareholder approval. Shareholder approval will also be required in connection with the acquisition of the stock or assets of another company if any director, officer or substantial shareholder of the issuer has a 5% or greater interest (or such persons collectively have a 10% or greater interest), directly or indirectly, in the company or assets to be acquired or in the consideration to be pain in the transaction or series of related transactions and the present or potential issuance of common stock, or securities convertible into or exercisable for common stock, could result in an increase in outstanding common shares or voting power of 5% or more.
What is a reverse merger? Are reverse mergers allowed on the BBX?
A reverse merger is a merger where a non-listed company merges with a listed company, resulting in the non-NASDAQ entity obtaining a NASDAQ listing without qualifying for initial listing. BBX companies that are involved in reverse mergers will not be allowed to continue to list on the BBX and must submit an initial listing application as a new, merged company to be listed.
What constitutes a reverse merger?
A significant change in the management structure, composition of the Board of Directors, voting power, company operations, or financial structure of the company, among other things, could signify that a reverse merger has taken place.
Does each issuance of stock options to officers and directors require shareholder approval?
No, only the initial plan for issuance of stock options requires shareholder approval. Individual grants that are not made under the initial plan may also require shareholder approval.
Public Interest Standard
If a major shareholder who is not an officer or director has any past regulatory problems, would that hinder an application to the BBX, even if all other requirements are met?
Yes, shareholders who own 10% or more of the company will be scrutinized under the Public Interest standard.
What if there is a past regulatory problem with a key officer of the company? Is there any way to retain this person as part of the company if we want to list on the BBX?
Public Interest questions are handled on a case-by-case basis. In some instances, depending on the circumstances, it may be possible to take steps that would enable the company to retain that person; for example by placing their shares in a non-voting trust.
Marketplace Rules
Does the Limit Order Display Rule apply to the BBX?
No, market participants are not required to accept and display limit orders on the BBX.
Will limit order protection rules (Manning Rules) apply to the BBX?
Yes, the BBX will implement limit order protection rules. The rule, in general, prohibits member firms that accept customer limit orders from “trading ahead” of their customers for their own account at prices equal to or superior to the limit orders, without executing them at the limit price. Members may, however, trade ahead of a customer limit order if the trade for their own account provides a minimum level of price improvement over the limit order price.
Will companies that list on the BBX be exempt from “Blue Sky” rules?
No, like the NASDAQ SmallCap® market, the BBX market will not be exempt from Blue Sky rules. These rules state that a company must register with the state securities regulators in each state in which the company sells its securities.
Will BBX securities be exempt from the Penny Stock Rules?
The Penny Stock Rules will apply to all BBX securities that trade under $5 per share. BBX securities over $5 are exempt, per SEC rule 15(g)(9).
Will there be an up-tick rule on the BBX before a stock can be sold short?
No, the BBX will not include an up-tick rule.
What are the rules for shorting on the BBX?
First, market makers will be required to report their short interest positions on a monthly basis. The short position report will show the market maker’s standing position at the end of the month. These reports will be available on the BBX Web site.
Additionally, BBX market participants must comply with the NASD rule regarding affirmative determination, which requires that a short seller determine that he can borrow the shares before he completes the short sale transaction.
Finally, UPC Rule 71, which requires that market participants with short positions of more than ½% of all outstanding issues in a security must cover their position within 10 days, will apply.
Trading Symbols
Will companies listed on the BBX have new trading symbols?
All issuers will choose a new symbol for their BBX security. The symbol naming convention will be as follows: two letters, XB, followed by three alpha characters of the company’s choice, for a total of five letters in each symbol. The XB convention is used to help easily distinguish BBX listed companies from those trading over-the-counter.
How can I reserve my trading symbol?
Requests for trading symbols are submitted as part of the listing application. Trading symbols will be assigned on a first-come-first-serve basis. There is no priority given to current OTCBB issuers. For more information on trading symbols, refer to the BBX website.
Will the BBX use symbol extensions, such as “E” to designate delinquency in filings and “Q” to designate bankruptcy proceedings, in the same way as it is done on the OTCBB today?
The BBX will continue to disseminate a special designator to the marketplace; however, this will not be accomplished using the current symbol extension method used on OTCBB today. The Quote Montage of the BBX Workstation will display a new field (Business Condition Code) for this designator. In addition, the BBX data feed will disseminate, on a daily basis, a BBX symbol directory that will include a field (Issuer Status) that will provide the designator when appropriate.
BBX Trading System
Will the BBX continue to use market makers?
Yes, the BBX will continue to use a system of market makers, as is done on NASDAQ.
Where can I find a list of market participants?
A list of market makers that currently make markets in OTCBB stocks is available the OTCBB website. Once the BBX launches, we will make available a list of firms that make markets in BBX stocks.
Will ECNs participate in the BBX?
Yes, electronic computer networks (ECNs) and alternative trading systems (ATSs) will be allowed to participate in BBX. However, ECN access fees will be built into the price of their quotes.
Will the BBX use a trading system or will it be a quotation service like the OTCBB?
The BBX will use a trading system modeled closely on NASDAQ’s SuperMontageSM system. The system will offer both auto-execution and order delivery capabilities. |
