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Author Topic: Pink Sheets Works to Increase Disclosure in the Market for OTC Equity Securities  (Read 3351 times)

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The Web Team

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Pink Sheets News Service

Urges SEC to Expand Disclosures by Insiders and Affiliates under Rule 144


On August 23, 2007, the Pink Sheets filed with the Securities and Exchange Commission a letter responding to the SEC's request for comments regarding proposed amendments to Rule 144 and 145. Generally speaking the Commission is proposing to reduce holding the periods in Rule 144 under certain conditions for the securities of public issuers. Moreover, the Commission is proposing to reduce substantially the restrictions on the resale of securities by non-affiliates.



Pink Sheets strongly supports the current proposal. We believe that the proposed reductions in the holding period requirements under Rule 144 will lower the cost of capital for smaller issuers without sacrificing investor protection. For similar reasons, we support elimination of the volume, manner of sale and Form 144 filing requirements of the Rule for non-affiliates of the issuer. At the same time, we strongly support retention of these requirements for affiliates. Most of the abuses in transactions involving unregistered securities are, in our experience, attributable to sales and purchases by affiliates of the issuer. We strongly support codification of the view expressed by the staff in a letter to the NASD that Rule 144 is not available for the sale of securities issued by companies that are currently shell companies, whether registered or unregistered, as most micro-cap frauds result from the purchase and sale of securities issued by shell companies. Pink Sheets disagrees with the proposed restrictions on non-reporting companies that start as shell companies from using Rule 144 without registration.

Pink Sheets nonetheless believes that the proposed Rule could be improved considerably by increasing the amount of disclosure required when control persons are trading in the market and clarifying the means by which issuers that are not subject to Exchange Act reporting can make current information publicly available. It is backwards to have the disclosure requirements of Rule 144 driven by Rule 15c2-11. Rule 15c2-11 is a rule designed for broker-dealers who are often not affiliated with the issuer and the information requirements reflect what an unaffiliated outsider would be able to collect before initiating quotations. That should not be the standard for issuers and their affiliates. We recommend that the disclosure requirements of the Rule 144(c)(2) be integrated with the disclosure requirements for private offerings under Regulation D of the Securities Act. Moreover, the integrated information requirements contemplated in private offerings should drive the disclosure requirements of Rule 15c2-11 under the Exchange Act, thereby providing the touchstone for whether adequate current information is being provided to market participants, as well as the obligations of quoting broker-dealers. Finally, Pink Sheets believes that Form 144 should be filed electronically and made available on EDGAR and that certain information, in addition to the items proposed, should be required in the Form.

To the view the full Pink Sheet letter, please visit http://www.sec.gov/comments/s7-11-07/s71107.shtml. Through September 4, 2007, the Commission is accepting comments on its proposed rule amendments; those interested in commenting may find the internet comment form at http://www.sec.gov/rules/sro.shtml, or may send an e-mail to rule-comments@sec.gov with the file number S7-11-07 included on the subject line.

For further information about Rule 144 and our efforts here, please contact us at info@pinksheets.com, or contact Michael T. Dorsey, Esq., Managing Director, Trading Services & Compliance at 212-896-4456.
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