In their January 2016 newsletter
, OTC Markets Group announced that they continue to be the “Global Leader in Exchange Graduates”. OTC Markets Group also highlighted that “Over the past five years, nearly 400 companies have used OTC Markets Group as a springboard to a national securities exchange listing
” (bold emphasis added).
With 60 graduates, the OTC had 51 more graduates than the junior exchange with the second highest number of graduates (the TSX with 9 total graduates). While its clear that the OTC Markets produces more graduates than any other exchange, 2015’s 60 graduates are 23 (or about 27%) less than the 83 OTC graduates of 2014. It is also less than the average of approx. 80 graduates/year over the last 5 years (400÷5).
In their newsletter, the OTC Markets Group did not elaborate on the decrease in graduates. This decrease got me thinking; why did less OTC companies uplist in 2015?
I came up with four possible answers:
Regular Fluctuation: Based on the “nearly 400 companies [have graduated in the last 5 years]” stat, the average graduation rate was approx 80/year. While a 25% fluctuation from the average is significant, with so few graduates annually, just a handful of companies can have a big impact.
Issuers Are Staying On The OTC
: Over the last couple of years the OTC Markets has made great strides, improving the standards of both their QB
and QX tiers
. Perhaps this increased quality of the QB and QX has made more issuer comfortable staying on the OTC for longer.
Less IPOs/Reverse Mergers
: 2015 was one of the slowest years for IPOs and reverse mergers
. In 2015, IPOs were down 34% from 2014 and reverse mergers were down 42%. Less new issuer joining the OTC may mean less issuers trying to uplist.
: Issuers who have gone public via reverse merger must comply with “seasoning rules
” that require certain issuers to trade on the OTC (or similar exchange) for a minimum of one year before joining a senior exchange. Whiles these rules aren’t new, they may discourage companies from quickly jumping from the OTC to a senior exchange.
Those are my guesses as to why there were nearly 30% less up-lists in 2015 than 2014. Perhaps I am off the mark. I had a hard time finding up-list data for 2013, 2012, or 2011. It would be interesting to look at some more data to see what insights it might provide… maybe another day!
About Ben Kotch:
Ben Kotch is a managing director and investment committee member at Acquis Capital, LLC, a private investment firm that specializes in acquisition funding. He has extensive experience with both private and public companies. Ben graduated with an economics degree from Bentley University where he concentrated in entrepreneurship and law.
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