Securities and Exchange Commission Issues Guidelines to Govern Over-the-Counter Markets in the Securities Industry

The Securities and Exchange Commission (SEC) has issued the Securities Industry (Over-The-Counter Market) Guidelines, 2022 (SEC/GUI/001/02/2023) (the OTC Market Guidelines) to regulate over-the-counter (OTC) markets for securities and prescribe the rights and obligations of issuers whose securities are traded on an OTC basis. The OTC Market Guidelines define an OTC Market as an approved trading facility for the admission and trading of unlisted securities. 

The OTC Market Guidelines provide:

(a) that unlisted securities issued to the public by corporate entities (including public companies) are required to be traded on an OTC market;

(b) that a public company which has not issued securities to the public may utilise an OTC Market for the secondary trading of its securities;

(c) that all securities admitted to an OTC Market must be dematerialised and held through an approved securities depository;

(d) the process for applying for a licence to operate an OTC market;

(e) rules for the management and membership of an OTC market;

(f) qualification requirements for the admission of securities to trading on an OTC market;

(g) the rules of conduct for dealers and other securities industry operators on an OTC market; and

(h) financial and other reporting obligations for operators of an OTC market and issuers of securities which are traded on an OTC basis.

The SEC is (under the Securities Industry Act, 2016 (Act 929) as amended (the Securities Industry Act)) authorised to regulate the issuance of securities by corporates, statutory bodies and local government authorities to the public. Such securities offered to the public are usually admitted to formally licensed securities exchanges for secondary trading purposes. However, the issuers of such securities may opt to issue them on an unlisted basis and in such situations, the unlisted securities may be traded directly (on a private basis) without the intervention of a centralised securities exchange. Such decentralised markets on which unlisted securities are traded are referred to as OTC markets. The Securities Industry Act gives the SEC power to regulate OTC markets.

By issuing the OTC Market Guidelines and requiring all unlisted securities which are issued to the public by corporate entities (including public companies) to be traded on an OTC market, the SEC expects to promote an open, impartial and informative marketplace for unlisted securities which are issued to the public.