OTC Markets Stock Promotion Policy: Ensuring Market Integrity

Timely disclosure of material information is essential to maintaining efficient and transparent trading markets. The availability of adequate and current information is a core principle of OTC Markets Group’s disclosure-based philosophy and the OTCQX and OTCQB Rules. Reputable public companies are expected to promptly release any news or information that could materially impact the market for their securities.

Public company management is also responsible for dispelling unfounded rumors, misinformation, or false statements that result in unusual market activity. Misleading and manipulative promotions fall within this scope of concern and must be addressed immediately.

The rise of social networks and online media has expanded how public companies interact with potential investors. While digital marketing provides investor relations professionals with the ability to reach millions, it also opens the door for anonymous market manipulators to execute fraudulent promotional campaigns that compromise public market integrity and mislead investors.

OTC Markets Group is actively working to establish best practices, enhance market transparency, and address the issue of misleading and manipulative stock promotions.

Identifying Fraudulent Promotional Campaigns

Stock promotions become misleading and manipulative when information is disseminated in a way that disrupts the efficient pricing of a security. Such campaigns often rely on false or unverified claims, the omission of material facts, exaggerated projections, or unrealistic price targets. Fraudulent promotions are distributed through various channels, including emails, newsletters, social media, press releases, videos, telephone calls, and direct mail.

Anonymous paid promotions are frequently linked to unregulated parties or financiers who acquire securities through private transactions and seek to generate artificial demand to sell shares at inflated prices.

As stated on the OTC Markets website, the following are common traits of misleading and manipulative stock promotion:

  • Fail to clearly identify the sponsor of the promotion, and/or the promotion is sponsored or paid for by anonymous, unidentifiable 3rd parties.
  • Typically, focus on a company’s stock rather than its underlying business.
  • Use highly speculative language. Materials often rely on grandiose numbers and figures related to the target company’s industry, business model, financial results, or business developments.
  • Tout performance or profit potential of an issuer’s security with unsupported or exaggerated statements about the stock price or its anticipated trajectory.
  • Make unreasonable claims pertaining to an issuer’s operations.
  • Suggest a promise of a specific future performance of the stock or profit to investors.
  • Provide little or no factual information about the company, omit material information.
  • Urge the investor to take action immediately as not to miss out on a great opportunity.
  • Fail to provide details or disclosures about the risk associated with the issuers security.

OTC Markets Group’s Response to Promotion

OTC Markets Group actively monitors promotional activity related to securities traded on its platforms. This includes identifying anonymously paid promotions, assessing potential connections to bad actors, and evaluating the impact of promotional campaigns on trading activity.

A company whose security is being promoted may not be directly involved or even aware of the campaign. However, all public companies have an obligation to ensure accurate disclosure and swiftly address any misleading information that could affect the market for their securities.

Stock Promotion Designation

OTC Markets Group publicly identifies securities undergoing promotion to enhance market transparency by displaying a “stock promotion” flag next to the stock symbol and company information on its websites and data feeds, including otcmarkets.com. This designation serves as a warning to investors and supports broker-dealer compliance efforts. The flag remains on the security for 15 days after the last promotional material is distributed.

Impact on OTCQX and OTCQB Markets

Companies engaged in misleading and manipulative stock promotion risk their eligibility for trading on the OTCQX and OTCQB markets. If a company is actively involved in a promotional campaign or has a significant history of such activity, it may be denied listing or removed from these markets. In particular, shell companies—those with little or no assets or business activity—are of heightened concern. Anonymously paid promotions for such entities can lead to immediate removal from the OTCQB market, as shell companies are ineligible for OTCQX.

Caveat Emptor Designation

OTC Markets Group employs the “Caveat Emptor” designation, marked by a skull and crossbones icon, to warn investors of potential risks associated with certain securities. This label is applied when there is evidence of misleading promotion, an investigation into fraud, regulatory trading suspensions, undisclosed corporate actions, or other public interest concerns. Securities with this designation are subject to restricted quotation display, preventing them from being quoted in the Pink Limited or Expert Market tiers.

Commitment to Market Transparency

OTC Markets Group’s policies on stock promotion aim to establish best practices, protect investors, and ensure market integrity. By identifying misleading promotions and enforcing disclosure requirements, OTC Markets seeks to foster a transparent and efficient trading environment, reinforcing trust in the public markets.