The Securities and Exchange Commission (SEC) has approved the new rules for Executing Negotiated Deals on the NASD Over-the-Counter (OTC) Securities Exchange. This is will improve transparency and price discovery on the platform.
In a notice released by SEC, it was stated that in the newly approved rules, where a newly introduced security is accompanied by a valuation sheet prepared by an independent party, negotiated deals can be executed only after three months of entry to the OTC market.
It further noted that in the case of a newly introduced security, which is accompanied by a valuation sheet prepared by a related party, negotiated deals can be executed only after six months of entry to the OTC market.
On post admission or currently admitted securities, the NASD said it reserves the right to decline a negotiated deal request after considering certain factors which include, but not limited to value of transaction frequency of transaction and market information.
Also, the exchange noted that any deals negotiated outside the prevailing price band shall attract additional administrative costs as approved by SEC to be estimated based on the volume and value of the transaction.
It was further stated that under the new regulations, negotiated deals priced outside the prevailing price band can be executed by downloading and completing the NASD Form, which must be signed by the Chief Executive Officer and the Compliance Officer of the participating institution and then returned to the exchange, together with a signed client mandate which shows that they are aware of the market opening price as at the date of the negotiated deal.
On High Volume Trades, which are trades in equities which represent more than 5 percent of the total issued and fully paid capital of the company’s shares, the exchange stressed that participating institutions are under the obligation to obtain the written consent of NASD prior to executing such transactions.
It also directed that any application to execute a High-Volume Trade must be accompanied by an application letter highlighting the rationale behind the transaction, pricing, volume and beneficial holding of the securities prior to and after executing the transaction.
In addition, parties must obtain, fill and submit the NASD Form 7 (buyer and seller mandates). The exchange said it would then communicate its decision on the application within 48 of receiving the completed request.
