So with your experience with OTC markets, I’m sure you know how much a stock tanks when it gets kicked off otc to the gray market. Down 90-99% seems typical. That will happen to otc scams but also to real value stocks that don’t follow these new rules, either because they don’t care or it’s too expensive. Here’s one of the investor comment letters to the SEC that they ignored, summing up the issues. Worth a full read, but here’s one excerpt - https://www.sec.gov/comments/s7-14-19/s71419-192647.htm I think a few examples in my personal portfolio of bargain OTC stocks makes that case. Among my largest positions are 'dark' trade-by-appointment stocks that provide as little public information as possible. Vulcan International (VULC), DBM Global (DBMG) and Sonics & Materials (SIMA) were all tremendous bargains when purchased. They were literally worth many times what I paid for them, but I did have to go through the hassle of contacting the companies for their Annual Reports, and all 3 require proof of ownership and an NDA to be signed before sending their minority shareholders the company financials. I believe all 3 companies would like nothing better than their stock prices to not be quoted. The SEC would actually be abetting the desire of these companies to 'hide the ball' by essentially eliminating trading is such securities, not to mention stranding the many investors who own such 'dark' OTC securities. Ah, I see they have an exception for listed stocks. Thanks.
So first off, I see on Edgar that DBMG and SIMA are up to date on their filings and wouldn't be impacted by this rule. VULC is an oddball that apparently is owned almost entirely by one family who is well known for providing no rights to minority shareholders. I feel like if one knows they're buying a company like VULC that doesn't want its stock to trade on OTC and they know they make it hard to get the information required and know it is majority owned by one shareholder, and know they have shown that they will do all they can to trample minority shareholders and ensure one can't publicly trade the company.....then that's a risk the buyer took when they bought shares and is probably one of the main reasons the shares were "tremendous bargains" in the first place! Shares of private companies trade hands all the time. If one really holds shares that have a value, they can sell their shares, just maybe not on the OTC BB with the aid of a regular stock broker. Heck if you have actually valuable shares I'm happy to consider buying them! There isn't a 90% premium for shares just because a company is "tradable". Another way to look at it is the reverse. I own a company now and could sell shares privately to accredited investors. There's no way I could sell those same shares for 9X more if I put the company on the OTC BB. Which means that 90% drop when it goes the other way, an OTC BB stock dropping off the tradable list, isn't happening because the stock was really worth that much and is now worth 90% less simply by virtue of the shares being more difficult to transact. It means it was a pump and dump and the people who lost 90% all got scammed. They didn't lose their money when it stopped trading, they lost their money when they overpaid for it initially. Again, show me a company that was truly worth $10M yesterday and today is selling for $1M with no other change than tradability on the OTC BB and I'll snap it up in a heartbeat. The truth is it was never worth $10M.
Is my money, is my right to buy 300.000.000 shares from 0.0001 ! Brokers just need add two factor authentication, maybe a physical device, to remove their liability
It’s not quite that simple. Most investors don’t have a timeframe of “forever” ala Berkshire and do value the liquidity of being able to sell their holdings, either for funding their lifestyle or reallocating to other more promising investments when circumstances change. For these reasons, if your stock was going from a 1% spread and decent trading volume to a 30% spread and trading a few times a week if you’re lucky, the illiquidity penalty would be quite severe. As such, many current shareholders, when put in this situation by the SEC later this year, will be willing to sell at large discounts to the prior value when they need liquidity for something. If you can handle the problems, ie lots of time, confidence in the valuation, brokers willing to trade these securities post-crackdown, etc, then yeah, those sellers may provide a bargain to you. But why provide them any bigger bargain than necessary? Why not bid $0.05 or $0.10 on the prior dollar, instead of $0.30 or $0.50? liquidity has real value - just ask AMC why they’re not bankrupt and instead are worth 10s of billions. That value is being lost and hence the stocks impacted are rationally worth less. Gray market is a huge loss of liquidity, and so the price hit for that change will be high even for “real” companies.
Again, liquidity in the form of OTC BB listing doesn't make my company 9 times more valuable, therefore the reverse isn't true that becoming unable to trade on OTC BB removes 90% of the value of a company. If these poor folks later this year are really selling something worth $X then there are hundreds of not thousands of investors who would be happy to take it off their hands for them at something pretty close to $X, just like I could easily find someone to buy shares in my private company for something pretty close to the actual value in a fairly short period of time. If I'm the only one willing to buy these shares and I'm getting them for $.10 on the dollar than it means either all those thousands of other investors out there, many who do this for a living, are morons for not picking them up for $.11 on the dollar....or more likely the companies were never worth more than $.10 on the dollar to start with. I think we both know the latter is far more likely to be the truth. Again I don't doubt plenty of folks will take a bath when this goes into effect, but the loss actually happened when they bought something worthless, not when it simply became harder to find a greater fool to sell it to.
We’ll have to agree to disagree on this. Whether a 90% hit is the right number will depend a lot on who currently owns the stock and whether opportunistic buyers can find a broker who will let them bid for it in the gray market. The more shorter term current shareholders / traders in a stock, regardless of whether it’s a “real” company or not, the worse you’d expect the impact when they all fairly soon want out but the possible buyers are more patient. Your private company example isn’t the right comparison here - presumably it was private with no liquidity except through private transactions and still was after you sold it, so fair value in both cases would include the fact that private stock trades at a meaningful discount to an equivalent public stock. You can see 20-30% discounts in the pre-IPO unicorn secondary markets ahead of IPOs, and they are obviously bigger for smaller, riskier companies that might not manage to go public. lest you think I’m just making up these numbers, as a recent example GTT/GTTN just took a 60% hit getting delisted from NYSE. Same company, same not very good business situation - one day it was in the low $2s, two days later on OTC it broke below a buck. That was the difference between listed and otc liquidity, and here there was plenty of liquidity otc with millions of shares traded each day. Gray markets are way way worse.
I guess I didn't explain my example well. In the theoretical situation where I listed my private company directly on the OTC BB (not a real IPO of a unicorn which is a completely different thing from a $10-20M company) there's no way I would be able to sell shares on the OTC BB for 9X what I could have sold them on the private market the day before. Going on the OTC BB doesn't ever give a company 9X valuation or even 2X valuation over those same shares trading privately. If going on OTC BB can't double your value overnight than the liquidity isn't what's providing that extra value that's lost when a stock goes off. It's the pumpers going away. And I'm not disagreeing with you at all that stocks drop in price when they go off OTC BB, that's simply a fact. I'm just asserting that they drop because there's no longer a greater fool to buy them and the drop simply reflects them going to an actual value based on the underlying company. As an interesting aside, everyone judges an IPO based on the difference between the IPO price and the price after it starts trading, i.e. if the IPO was at $10 and it ends up at $20 then it "doubled", which is true for the people who bought in at the IPO. But if you are doing a comparison of what we're talking about here it's not the IPO price that you use as a reference as that's entirely arbitrary. It should actually be based on the last round of private placement which more accurately reflects the value of being listed vs private.