IBA Compliance Connection

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Our bank holding company is traded on the OTC Bulletin Board (OTCBB). OTC Markets Group has recently provided us with new disclosure guidelines informing us that to comply with new amendments to 17 CFR 240.15c2-11 (Rule 15c2-11) effective September 28, 2021, we will need to upload audited financial statements, a list of our directors, and other items, including “Call Reports or other Bank Regulatory Filings.” We will also be charged a fee. Is this a legitimate requirement, and is there anything else we should know about these new amendments?

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It appears that the OTC Markets Group’s disclosure requirements are legitimate, as they are related to the SEC’s Rule 15c2-11 amendments, and you will need to comply with their disclosure requirements and pay the requested fee in order to remain listed on your preferred bulletin board. However, we recommend asking OTC Markets Group about its collection of nonpublic information, such as information in your Call Reports that is confidential and your audited financial statements, since it is required to make information collected under Rule 15c2-11 publicly available.

It appears that the OTC Markets Group’s disclosure guidelines are based on its interpretation of the SEC’s requirements under Rule 15c2-11 as they apply to bank holding companies. The SEC’s amendments to Rule 15c2-11 generally prohibit broker-dealers (such as OTC Markets Group) and “qualified interdealer quotation systems” (such as the OTCBB) from publishing quotations for an issuer’s security when certain issuer information is not current and publicly available, subject to certain exceptions. Some of the required issuer information under Rule 15c2-11 includes the name and title of all company insiders, the number of outstanding shares, a business description, the issuer’s most recent balance sheet, profit and loss statements, retained earnings statements, and “similar financial information.”

Additionally, the supplementary information published with the SEC’s Rule 15c2-11 amendments supports the position that banks and bank holding companies may be required to disclose more information under Rule 15c2-11 than what they already disclose to their regulators. The SEC noted that the information that banks provide to their regulators “generally is not the same as the information specified in paragraph (b) of the amended Rule,” and that “financial information that is posted on the website of a federal banking regulator . . . might not include the relevant financial information of the bank’s holding company (i.e., the issuer of the security), which would have to be current and publicly available for a broker-dealer to publish a quotation.”

The OTC Market Group’s disclosure guidelines appear to generally track the information required under Rule 15c2-11. Some of the information requested under the guidelines falls squarely under Rule 15c2-11 (such as balance sheets, statements of income, statements of retained earnings, a list of insiders, and a business description), while the request for “Call Reports or other Bank Regulatory Filings” appears to be related to the rule’s requirement that OTC Market Group obtain “similar financial information” before listing a quotation for your bank’s security.  

Consequently, it appears that OTC Markets Group is interpreting Rule 15c2-11 as requiring it to collect the information outlined in its guidelines for the legitimate purpose of complying with the rule. However, we recommend asking OTC Markets Group about the exact basis of any disclosure requirements that seem to fall outside of Rule 15c2-11’s requirements. For example, while the FFIEC generally makes Call Reports publicly available on its website, certain information in these public Call Reports is redacted for confidentiality purposes. Additionally, it is unclear what “other Bank Regulatory Filings” would encompass (and the OTC Markets Group’s disclosure requirements themselves state that it “is seeking additional guidance from the SEC to confirm that Bank Regulatory Filings containing annual audited information (e.g. quarterly call reports) will fulfill the applicable financial disclosure requirements under Amended Rule 15c2-11”).

For resources related to our guidance, please see:

  • SEC Rules, 17 CFR 240.15c2-11(a) (“As a means reasonably designed to prevent fraudulent, deceptive, or manipulative acts or practices, it shall be unlawful for:

(1) Brokers or Dealers. A broker or dealer to publish any quotation for a security or, directly or indirectly, to submit any such quotation for publication, in any quotation medium, unless:

  • (i)
    • (A) Such broker or dealer has in its records the documents and information specified in paragraph (b) of this section;
       
    • (B) Such documents and information specified in paragraph (b) of this section (excluding paragraphs (b)(5)(i)(N) through (P) of this section) are current and publicly available; and
       
    • (C) Based upon a review of the documents and information specified in paragraph (b) of this section, together with any other documents and information required by paragraph (c) of this section, such broker or dealer has a reasonable basis under the circumstances for believing that:
       
    • (1) The documents and information specified in paragraph (b) of this section are accurate in all material respects; and
       
    • (2) The sources of the documents and information specified in paragraph (b) of this section are reliable; or
       
  • (ii)
    • (A) The quotation medium is a qualified interdealer quotation system that made a publicly available determination that it has performed the activities described in paragraph (a)(2)(i) through (iii) of this section; and
       
    • (B) Such quotation is published or submitted for publication within three business days after such qualified interdealer quotation system makes such publicly available determination.

(2) Qualified interdealer quotation systems. A qualified interdealer quotation system to make known to others the quotation of a broker or dealer that is published or submitted for publication pursuant to paragraph (a)(1)(ii) of this section, unless:

  • (i) Such qualified interdealer quotation system has in its records the documents and information specified in paragraph (b) of this section (excluding paragraphs (b)(5)(i)(N) through (P) of this section except where the qualified interdealer quotation system has knowledge or possession of this information);
     
  • (ii) Such documents and information specified in paragraph (b) of this section (excluding paragraphs (b)(5)(i)(N) through (P) of this section) are current and publicly available;
     
  • (iii) Based upon a review of the documents and information specified in paragraph (b) of this section (excluding paragraphs (b)(5)(i)(N) through (P) of this section, except where the qualified interdealer quotation system has knowledge or possession of this information), together with any other documents and information required by paragraph (c) of this section, such qualified interdealer quotation system has a reasonable basis under the circumstances for believing that:
     

    • (A) The documents and information specified in paragraph (b) of this section are accurate in all material respects; and
       
    • (B) The sources of the documents and information specified in paragraph (b) of this section are reliable; and
       
  • (iv) The qualified interdealer quotation system makes a publicly available determination that it has performed the activities described in paragraphs (a)(2)(i) through (iii) of this section.

(3) Qualified interdealer quotation systems or registered national securities Associations. A qualified interdealer quotation system or registered national securities association to make a publicly available determination described in paragraph (f)(2)(iii)(B), (f)(3)(ii)(A), or (f)(7) of this section, unless such qualified interdealer quotation system or registered national securities association establishes, maintains, and enforces reasonably designed written policies and procedures to determine whether:

  • (i) The documents and information specified in paragraph (b) of this section are current and publicly available; and
     
  • (ii) The requirements of an exception under paragraph (f) of this section are met, if it makes a publicly available determination described in paragraph (f)(7) of this section.”)
  • SEC Rules, 17 CFR 240.15c2-11(b)(5)(i) (“The following information, which must be (excluding paragraphs (b)(5)(i)(N) through (P) of this section) as of a date within 12 months prior to the publication or submission of the quotation, unless otherwise specified:

(A) The name of the issuer and any predecessors during the past five years;

(B) The address(es) of the issuer’s principal executive office and of its principal place of business;

(C) The state of incorporation or registration of the issuer and of each of its predecessors (if any) during the past five years. . .

(F) The number of shares or total amount of the securities outstanding as of the end of the issuer’s most recent fiscal year. . .

(H) A description of the issuer’s business. . .

(K) The name and title of all company insiders;

(L) The issuer’s most recent balance sheet (as of a date less than 16 months before the publication or submission of the quotation) and profit and loss and retained earnings statements (for the 12 months preceding the date of the most recent balance sheet);

(M) Similar financial information for such part of the two preceding fiscal years as the issuer or its predecessors has been in existence. . . .”)

  • SEC, Final Rule, Publication or Submission of Quotations Without Specified Information, 85 Fed. Reg. 68124, 68160 (October 27, 2020) (“One commenter suggested that the exception be expanded to include other categories of issuers, such as banks and insurance companies that provide information to their regulators, companies that undergo bankruptcy proceedings and provide information to a bankruptcy court, and other issuers that have a verifiable operating history and revenues and that pay dividends. . . . The Commission does not believe that it would be appropriate to except from the requirement for current and publicly available information securities of banks and insurance companies that provide certain information to their regulators, which generally is not the same as the information specified in paragraph (b) of the amended Rule”)
     
  • SEC, Final Rule, Publication or Submission of Quotations Without Specified Information, 85 Fed. Reg. 68124, footnote 249 (October 27, 2020) (“Financial information that is posted on the website of a federal banking regulator, such as https://cdr.ffiec.gov/ and https://www.ffiec.gov/, generally includes the following financial information for companies that is specified in paragraph (b)(5)(i)(L) of the amended Rule: the issuer’s balance sheet, income statements, and retained earnings statement. However, the Commission notes that a bank’s financial information provided on such a website might not include the relevant financial information of the bank’s holding company (i.e., the issuer of the security), which would have to be current and publicly available for a broker-dealer to publish a quotation.”)
     
  • FFIEC, FFIEC Central Data Repository’s Public Data Distribution
     
  • FFIEC, Consolidated Reports of Condition and Income for a Bank with Domestic Offices Only and Total Assets Less than $5 Billion – FFIEC 051, page 64 (March 31, 2021) (“However, the information reported in Schedule RI-E, item 2.g, and Schedule RC-C, Part I, Memorandum items 17.a and 17.b, is regarded as confidential and will not be made available to the public on an individual institution basis.”)