How practical is the new BX Venture Market? By Gerald Adler of Newman & Morrison LLP

With the Securities and Exchange Commission’s recent approval of a new BX Venture Market comes the potential for competition with the OTC Bulletin Board and the systems run by OTC Markets Group, which includes:

• OTC QX;
• OTC QB;
• OTC Pink Sheets.

While the BX Venture Exchange will provide a platform for companies being delisted from other exchanges for failure to meet quantitative standards or companies contemplating an initial exchange listing, the qualitative listing requirements may cause such companies to think twice before listing and look into the less onerous requirements for reporting companies such as the OTC QB and OTC BB. While the quantitative listing standards may be minimal, the qualitative requirements are in many respects similar for listing on the NASDAQ Stock Market and other national securities exchanges. The following are some of those standards:

• Fully independent Audit Committee of at least three members;
• Independent directors make compensation decisions for executive officers;
• Required solicitation of proxies for each shareholders’ meeting;
• Required shareholder approval for use of equity compensation.

A listing will be more attractive to delisted companies but what about companies looking for an initial listing? They could list on the OTC QB with the OTC Markets Group with transparency and without having to adhere to those qualitative standards.

Companies listed on the BX Venture Market will not be exempt from state “blue sky” laws relating to the registration of securities.  Those companies, despite listing, would nevertheless have to comply with state registration requirements and other state laws that regulate the offer and sale of securities as opposed to state law exemptions granted to companies whose securities are listed on NASDAQ and other exchanges.

The quantitative initial minimum listing price for a company not previously listed on an exchange will be $1.00 per share as opposed to a minimum listing price of $0.25 per share for those companies who have previously listed on an exchange which is the price that has to be maintained for continued listing. It is questionable that a company whose shares are hovering around that price will go through the vetting process to be listed when their shares, subject to market conditions, might fall below the minimum quantitative price listing standard.

The release granting approval of the BX Venture Exchange made it clear that shares listed on that exchange would not be exempt from the penny stock rules while such an exemption would be available to companies whose shares are traded on NASDAQ or other exchanges.

While there may be more transparency for companies whose shares are listed on the BX Venture Exchange, such a company, when faced with the additional qualitative standards as well as being subject to the penny stock rules might want to examine the alternatives to such listing.

Gerald A. Adler
 
Newman & Morrison LLP
44 Wall Street, New York, NY 10005
Tel: (212) 248-1001

www.NewmanMorrison.com