The process of taking a company public often involves listing securities on the Over-the-Counter (OTC) markets as an alternative to national exchanges like the NYSE or Nasdaq. The OTC Markets Group operates an electronic inter-dealer quotation system that facilitates trading for a wide range of companies. Listing aims to increase a company’s visibility, enhance the liquidity of its shares, and provide a platform for accessing public capital. Successfully navigating the application requires understanding the market’s structure and its varying disclosure standards. The process begins by determining the appropriate market tier, as each level carries distinct requirements that dictate the application strategy.
Understanding the OTC Market Tiers
The OTC Markets Group segments its quotation platform into three distinct tiers, each representing a different level of quality and disclosure for investors. OTCQX Best Market is the top tier, reserved for established companies that meet high financial standards and demonstrate corporate governance practices. Companies on the OTCQX must be current in their disclosure and cannot be a shell company or in bankruptcy.
The next tier is the OTCQB Venture Market, designed for entrepreneurial and development-stage companies that may not yet meet the financial standards of the OTCQX. OTCQB companies must maintain a minimum bid price of $0.01 per share and be current in their reporting obligations, including providing annual financial statements audited by a Public Company Accounting Oversight Board (PCAOB) registered auditor. The final tier is the Pink Open Market, which has the most flexible disclosure requirements. It is categorized based on the information companies voluntarily provide: Current, Limited, or No Information.
Establishing Eligibility and Corporate Structure
Before submitting any formal application, a company must ensure its internal structure and financial metrics align with the chosen OTC market tier’s standards. For the higher tiers, such as OTCQX and OTCQB, the company must confirm it is not classified as a “shell company.” OTCQB and OTCQX applicants must also have sufficient public float, typically requiring at least 10% of the total issued and outstanding shares to be freely traded.
The company must also engage a transfer agent that participates in the Transfer Agent Verified Shares Program, a requirement for U.S. and Canadian companies on the OTCQB. For the OTCQX Best Market, the standards require the company to meet specific financial thresholds, such as net tangible assets of $2 million (for companies operating at least three years) or average revenues of $6 million for the last three years. Corporate governance is also expected, especially for OTCQX, which includes having a board of directors with a defined composition.
Engaging Professional Advisors
The listing process is technical and requires the mandatory involvement of specific external professionals to ensure compliance with securities law and market rules. The most significant advisor is a qualified securities attorney, who provides the formal legal opinion letter to the OTC Markets Group. This letter confirms the company is compliant with all applicable securities regulations and that the required public information is current and accurate.
The application for OTCQX and OTCQB necessitates the engagement of an independent auditor registered with the PCAOB to review the company’s annual financial statements. The PCAOB registration provides assurance that the financial reports adhere to rigorous auditing standards. For international companies seeking to list on the OTCQX, a Principal American Liaison (PAL), typically an approved securities attorney or investment bank, must be appointed to act as a sponsor and certify compliance with disclosure requirements.
Preparing Required Documentation and Financials
The administrative phase involves compiling and certifying a comprehensive package of documents that demonstrate the company’s financial health and legal standing. Companies seeking listing on OTCQX or OTCQB must submit audited annual financial statements prepared in accordance with U.S. Generally Accepted Accounting Principles (GAAP) or International Financial Reporting Standards (IFRS). The audit must be conducted by a PCAOB-registered firm, a standard waived only for certain international companies.
A core component of the documentation is the disclosure statement. For SEC-reporting companies, this is their Form 10-K or 10-Q filing, or an equivalent document for Alternative Reporting Standard companies. OTCQB applicants must also complete an Issuer Certification, a document signed by the CEO or CFO that attests to the accuracy of the company’s reporting status, public profile, and share count.
Submitting the Application and Completing the Review
Once all preparatory steps and documentation are complete, the company formally initiates the listing process by submitting its application directly to the OTC Markets Group. Submission is generally conducted through the OTC Disclosure & News Service (OTCIQ) online platform. The application must be accompanied by the required application and annual fees, which vary depending on the target market tier.
For companies targeting the OTCQX Best Market, a sponsoring broker-dealer or a Principal American Liaison must provide a letter of introduction, formally endorsing the company’s application and compliance efforts. The OTC Markets staff then conducts a thorough review of the submitted materials to confirm that all eligibility criteria and disclosure requirements have been met. This review period may involve requests for clarification or additional documentation. Upon successful review and payment of all fees, the company’s securities are officially qualified for quotation on the chosen market tier.
Maintaining Compliance and Reporting Requirements
Obtaining a listing is followed by ongoing obligations. All listed companies must maintain continuous disclosure, publishing annual and quarterly reports in a timely manner. For companies on the Pink Market seeking Current Information status, annual reports must be posted within 90 days and quarterly reports within 45 days of the fiscal period end.
OTCQX and OTCQB companies face demanding and specific requirements to maintain their status. OTCQB companies must maintain a closing bid price of at least $0.01 per share on at least one of every 30 calendar days. Furthermore, OTCQB companies must file an Annual Certification, signed by management, which re-confirms the company’s reporting status and compliance with all market rules. Failure to adhere to these standards can result in the company’s demotion to a lower tier or removal from the market altogether.