October 25, 2014
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Rule Proposing OTCBB Trade Halt Authority Submitted for SEC Approval

As part of the NASD's ongoing effort to address abuses in thinly traded, thinly capitalized securities and to increase investor protection in the trading of over-the-counter ("OTC") market, the NASD, Nasdaq, and NASD Regulation have been reviewing whether to establish trading and quotation halt authority for securities that are not listed on an exchange or on Nasdaq, but are traded by NASD members in the OTC market.

Nasdaq specifically focused on expanding its current trading halt authority, which generally extends to Nasdaq-listed securities and exchange-listed securities traded off an exchange (i.e., third market), to those securities quoted on the OTCBB. The OTCBB is an NASD system which, pursuant to delegated authority, The Nasdaq Stock Market, Inc. is responsible for operating.

Based on this review, the NASD and Nasdaq are proposing to expand Nasdaq's authority so that Nasdaq may impose quotation and trading halts in OTCBB securities when:

  1. the OTCBB security is dually listed or registered and a foreign regulatory authority or market halts trading in the security;
  2. the OTCBB security is a derivative or component of a security listed on Nasdaq, a domestic exchange, or foreign exchange/market (e.g., a convertible security or warrant) and Nasdaq, the exchange, or foreign exchange/market halts trading in the underlying security; or
  3. the OTCBB issuer does not timely provide the NASD with information required by Exchange Act Rule 10b-17.
Currently, NASD Rule 4120 authorizes Nasdaq to impose trading halts in Nasdaq-listed securities and securities listed on a national securities exchange and traded in the third market. There are, however, no rules that grant Nasdaq authority to impose trading or quotation halts in OTCBB securities. Additionally, unlike the Nasdaq market, there is no listing agreement between Nasdaq and OTCBB issuers, and thus Nasdaq does not have the ability to compel such issuers to disclose information to Nasdaq. Accordingly, it is difficult for Nasdaq to unilaterally impose halts in the OTCBB because, in most cases, information from the issuer is necessary to assess the situation and determine if a halt and/or resumption of trading is appropriate. In light of the foregoing, the NASD and Nasdaq are proposing to vest Nasdaq with proscribed trading-halt authority.


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