>X-Sender: jeronay@mail.jumpnet.com >Date: Thu, 23 Apr 1998 15:36:59 -0500 >To: (McClellen, Michael) , > (Mead, Mike) , > (Medi, Srini) , > (Menchaca, John) , > (Menogan, Annita) , > (Morgan, Andrea ) , > (Mower, Elizabeth) , > (Myers, Paul) , > (Newberger, Barry) , > (Nolen, Jim) , > (Northcutt, Michael) , > (Norris, Midge) , > (Opincar, John) , > (Perkins, John) , > (Peten, Jeannette) , > (Peterson, Robert) , > (Pinkley, Craig) , > (Pinkus, David) , > (Porter, David) , > (Rajab, Majdi) , > (Rapp, Jim) , > (Repass, Rob) , > (Romero, Jerry - fax 915-546-4254), > (Rogers, Kelly) , > (Ronay, James E.) , > (Rylance, Lorraine) , > (St. James, Sonia) , > (Schmitz, Paula) , > (Schumann, Paul A. Jr.) , > (Scurlock, Steve) >From: "James E. Ronay" >Subject: banish the emerging growth capitalization process -- TCAF > Members are Encouraged to Make Their Views Known to the SEC > >From: BradWSmith >Date: Thu, 23 Apr 1998 14:26:59 EDT >To: jeronay@jump.net >Subject: banish the emerging growth capitalization process >TCAF Members are Encouraged to Make Their Views Known to the SEC >X-Mailer: AOL 3.0 for Mac sub 84 > >Jim: I encourage you to recommend that TCAF Members send their views to the >SEC about proposed rule changes for otc bulletin board listed companies. Brad > >NATIONAL QUOTATION BUREAU URGES MASS ACTION BEFORE MONDAY! > >http://www.sec.gov/rules/propridx.htm > >[Rel. No. 34-39670; File No. S7-3-98] >E-MAIL: rule-comments@sec.gov > > >Some members of the SEC staff are believed by some observers to be seeking >to banish the emerging growth capitalization process in contravention of >Congress by literally "regulating" trading in such companies to death. A >current proposal that could effectively reduce market maker participation to >zero, widen spreads and eliminate liquidity almost slipped past with little >fanfare. However, comments may be registered until Monday, and a savior, >the National Quotation Bureau, has stepped forth, asking private investors, >shareholders, brokers and public company executives to urgently and >overwhelmingly e-mail the SEC to insure that the Commissioners are made >aware in no uncertain terms that it is a bad idea. > >***** > >SEC Rule Proposal affecting Issuers, Investors and Brokers by Cromwell >Coulson > >Chairman, National Quotation Bureau* >cromwell@bloomberg.net (Coming this week: cromwell@nqb.com) > >The Securities and Exchange Commission (the "SEC") is soliciting comments on >proposed changes to 15c2-11 (Release No. 34-39670 available at >http://www.sec.gov/rules/proposed/34-39670.txt), the rule that governs >publication of quotes in securities that are not listed on Nasdaq or an >exchange. > >Persons wishing to submit written comments should send an URGENT E-MAIL to >Jonathan G. Katz, Secretary, Securities and Exchange Commission, Mail Stop >6-9, 450 Fifth Street, N.W., Washington, D.C. 20549 at: >rule-comments@sec.gov . >All comment letters should refer to File No. S7-3-98; this file number >should be included >on the subject line if E-mail is used. Comments must be received on or before >Monday April 27, 1998. > >Interested issuers, investors and brokers should also contact their >Congressman, Senator or trade association so that their opinion on the rule >proposal is made known. > >***** > >While the SEC’s intentions are good, the National Quotation Bureau believes >the rule will have unintended consequences that will be highly detrimental to >investors, issuers and the secondary markets. If the proposed rule is enacted, >there will be: > >1) No prices in the Pink Sheets or on the OTC Bulletin Boardâ > >The National Quotation Bureau has been informed by some of our largest >market makers that they will not publish prices in the Pink Sheets or on the >OTC Bulletin Board if the rule proposal is passed. > >2) Huge potential liability for OTC market makers > >The rule proposal will create an ongoing liability for market makers in all >corporate securities that are traded OTC. Market makers will be liable for >third party actions by investors if there is any issuer fraud or manipulation >in the securities they trade. Even if the market maker had nothing to do with >the fraud or manipulation. The rule would not only cover securities quoted in >the Pink Sheets and on the OTC Bulletin Board, but all corporate securities >traded over the counter such as foreign equities, high yield bonds, corporate >bonds and convertible securities. Market makers will be the new deep pockets >for class action lawyers. > >***** > >The Commission re-introducing a proposal that was overwhelmingly opposed by >the vast majority of public comment letters in 1991. The new proposal is more >burdensome than the 1991 proposal. In 1991, according to the SEC proposing >release "The vast majority of commenters opposed the Commissions proposal. >These commenters believed that the proposal would discourage or even eliminate >market making for many non-Nasdaq securities. They claimed that the proposed >amendments would have impaired liquidity, reduced market value and harmed the >capital raising process. Several commenters believed that the proposed changes >would have hurt the market for the securities of many substantial and >legitimate companies, but would have little effect on fraud in worthless >stocks." > >*** >== The first defense against rigged markets is a competitive and efficient >market > >SEC Rule 15c2-11 presently requires that the market maker, which introduces a >security into an inter-dealer quotation medium, must review and vouch for the >security. After thirty days, any market maker can quote the security without >having to perform the review process. Currently, once a security is in the >system, competition and ease of entry are promoted. The new rule proposal will >drastically change the market structure. > > >The new rule proposal requires every market maker to review and vouch for a >security when they initiate quotations and on annual basis if they publish a >price. The proposed rule requires market makers to have a reasonable basis >under the circumstances for believing the issuer information is accurate and >current in all material respects, and that it is obtained from reliable >sources. Market makers will have an obligation to ascertain if there are >indications of whether potential or actual fraud or manipulation may be >present. The review process applies to both SEC filing and non-filing issuers. >Not only does the rule cover quotations in the Pink Sheets and on the OTC >Bulletin Board but OTC markets in corporate bonds and foreign securities. > >*** >== A good idea with bad consequences > >The rule proposal is based on a simple idea; "Market makers should know the >securities they trade." The National Quotation Bureau agrees that all market >participants should be as informed as possible so the market price reflects >all available information. It is the consequence of the rule that worries us. >If a market maker uncovers indications of fraud or manipulation, the firm is >supposed to stop trading the security. The market maker cannot have their >viewpoint reflected in the market by adjusting their quotations. The market >maker has no powers under the rule proposal to stop the parties that are >defrauding or manipulating. The market maker is not required to contact >regulators. The rule proposal makes the legitimate market maker walk away and >the crime continues. Imagine if basketball rules were structured so that when >a foul is committed, any honest player must quit the game and leave the court. >The bad guys would have a field day. Basketball needs referees to enforce the >rules of the game and securities trading needs to have rules enforced by >regulators. The National Quotation Bureau believes that rule proposals should >concentrate on speeding up the regulator’s whistle and creating harsher >penalties for rule breakers. > >*** > >== The Consequences > >The potential liability from an implied right of action by investors will >drive legitimate firms from making markets in OTC securities and give an >incentive for the remaining market makers to refrain from publishing prices. >It is much easier to manipulate markets when there is no competition or >transparency. The crooks will have free reign as the honest players exit the >business. > >Investors will suffer from illiquid, opaque OTC markets. Legitimate investors >and shareholders will be harmed. Substantial regulatory costs for market >makers will be passed on to investors in the form of wider spreads and less >liquidity. Competition will diminish, as fewer reputable firms are willing to >trade OTC securities. Transparency will decrease, as fewer market makers are >willing to publish prices. Some securities may disappear from the public >markets. > > >Issuers will have less liquid and transparent markets for their securities. >The cost of capital will rise if there is not an efficient secondary market >for small or troubled companies. Legitimate capital sources for small or >troubled companies will dry up. Market makers will be less inclined to quote >new securities. The good companies are forced to pay for others misdeeds. > >Market Makers will have substantial regulatory costs and potential liability >for third party actions. Market makers will be liable for the accuracy and >reliability of issuer information, even if the information was filed with the >SEC. > > >A competitive and transparent market should be available for all securities >and regulators should be given the tools to punish any entity that attempts to >manipulate that market or defraud investors. Fraud occurs across all markets. >Centennial Technologies Inc. (CENL) was listed on the New York Stock Exchange. >Stratton Oakmont was lead managers in twenty-seven stock offerings according >to Securities Data Company; all of which were listed on Nasdaqâ . On February >26th, an officer of A.R. Baron & Co. was convicted of twenty-five charges >including enterprise corruption, scheming to defraud, falsifying business >records, perjury, and manipulating prices of eight Nasdaq listed companies. >Forcing issuers to provide financial disclosure does not prevent fraud. >Comparator Systems Corp. (IDID) and Systems of Excellence Inc. (SEXI) both >filed with the SEC. The issuers, promoters and retail brokerages that commit >micro-cap fraud are violating and ignoring existing securities laws. Placing >higher regulatory and liability burdens on legitimate market makers who have >no relationship with the issuers, promoters or retail brokers is not the >answer. The market maker’s role is to find a price point where supply equals >demand. If there are falsehoods in the marketplace that are distorting the >supply and demand, the entities that are lying should be punished, not the >honest participants in the marketplace. > >As long as securities exist, investors will have a need to buy or sell them. >If regulation increases the cost of quoting securities in the OTC market, >market makers will pass on the cost to investors in the form of wider spreads >and less liquidity for all OTC securities. Issuers and investors will seek >other trading forums with less regulatory overhead such as issuer web sights >or offshore market makers. The public is not benefited by a rule that creates >a black market. > >While the current proposal is the wrong answer to a legitimate problem, the >end result of the proposal should be rules and regulations that work. The best >way to control fraud is to concentrate on the following areas: > >*** >== Education; increase investor awareness through education and disclosure. > >Efficiency; increase the competition, ease of entry, transparency and >efficiency while lowering costs to investors of OTC trading. The National >Quotation Bureau has proposed to automate our service to increase the >transparency and efficiency of OTC markets. > >*** >== Enforcement; give enforcement agencies the tools and staffing to keep the >markets honest. > >== Regulation should protect investors from those who wish to defraud them >while not limiting their opportunities. > > >The National Quotation Bureau views the SEC proposal as an opportunity to >create regulations that will work in stopping micro-cap fraud. All interested >parties should comment on the proposal. Comment letters should not just reject >the SEC proposal but offer alternative, viable solutions. Extensive comment >and input from issuers, investors and brokers will create regulations that >improve the quality of OTC markets > >Comments must be received on or before Monday April 27, 1998. > >****** > >(*) ABOUT THE NATIONAL QUOTATION BUREAU: > >Since 1913, when it was formed through the merger of two quotation services, >the NQB has been publishing information for the over-the-counter ("OTC") >securities market. Our core business has been publishing quotations of >competitive market makers in OTC securities in the National Quotation >Service (the "NQS"). The NQS was published weekly until the 1920’s. >Initially, it reported market quotations for firms in five eastern cities. >Over time, through advancements in communications technology, the service >expanded to over fifty cities. The NQB products and methods of delivery have >remained essentially the same for the past sixty years. > > >Listing privileges are only available to registered broker-dealers. In the >past, broker-dealers wanting to list in the NQS had to satisfy financial net >worth standards and disclosure requirements. They had to provide financial >information and references from banks and two New York Stock Exchange member >firms. Firms had to provide ten-year histories of each partner, officer, >principal stockholder and trader. A statement of clearance arrangements was >also required. > > >The establishment of the U.S. Securities and Exchange Commission (the >"Commission") and the NASD through the Securities Act of 1933 (the "Securities >Act"), the Securities Exchange Act of 1934 (the "Exchange Act") and the >Maloney Act amendments to the Exchange Act in 1938, created a system to >regulate and oversee broker-dealers and the OTC market. At the outset, the NQB >imposed higher standards than the Commission or the NASD on market makers. In >the early sixties, the listing service was opened to any broker-dealer >registered with the Commission and thus by default any NASD member. The NQB >was owned at that time by Commerce Clearing House. > > >Current Publications. Our main product is a quotation medium, the NQS, which >is composed of four sections: the Pink Sheets®, the Yellow Sheets™, the >Foreign Sheets and the Partnership Sheets. The Pink Sheets are the definitive >directory of all OTC equities. The Pink Sheets are the exclusive source of >quotations in over 2,000 equity securities. The Pink Sheets have market maker >quotations in 3,100 securities that are also listed on the OTCBB. They also >serve as a reference work for symbol and CUSIP® data for all the equities > >listed on NASDAQ® and the OTCBB. > >The Yellow Sheets are a quotation publication for all taxable debt. They >contain listings in 2,350 corporate, high yield, convertible and foreign >bonds. The Foreign Sheets are a publication covering foreign securities and >ADRs that trade in the United States. The Partnership Sheets publish non-firm >indications of interest in Direct Participation Program interests (the "DPP"). > > >The NQS is available electronically through vendors such as Bloomberg, Reuters >and ADP. The electronic product is a static page, updated nightly, of what is >available in the print publication. > > >Other Current Services. The NQB provides other valuable services to the >financial community and the public. We publish the NQB Stock Summary and the >NQB Bond Summary, directories of securities traded in the U.S. markets. They >include price histories, corporate addresses, phone numbers, transfer agents, >trustees, ticker symbols, coupons, maturity dates, mergers, splits, dividends, >reorganizations, bankruptcies and other corporate actions. > > >The NQB collects pricing for the securities listed in the NQS and provides >securities pricing services so brokers, banks and other custodians can value >customer positions. All the major pricing services use the NQB as a source to >price Non-NASDAQ equities. The NQB provides public companies with information >on who is making a market in their securities and historical price >information. The NQB library department provides research for banks, brokers, >lawyers, accountants and the public on historical prices and other >information. > > >The NQB is the public’s source for 15c2-11 fillings by broker dealers. The >NASD provides us with copies of all 15c2-11 filings, including financials for >companies that are not Edgar filers. We provide copies to the public upon >request. > > >Historical Regulatory Climate. Federal securities laws and NASD rules govern >the publication of quotations by broker-dealers in the NQS. In the past, the >NQB reviewed Rule 15c2-11 filings, and forwarded copies to the NASD and the >Commission. With the adoption of NASD Rule 6740 in 1990, the NASD assumed >responsibility for reviewing broker-dealer’s Rule 15c2-11 forms. The NASD >informs the NQB of broker-dealers that are clear to submit quotations in a new >security. The NQB receives from the NASD copies of all 15c2-11 forms and the >supporting financials if the company is not an Edgar filer. As a result, the >NQB is a comprehensive public depositary for 15c2-11 filings and provides >copies to the public upon request. > > >The NQB listings department reviews submissions of quotations by customers to >check if the NASD has cleared the broker or if the quotations are qualified >under exemptions such as Rule 15c2-11(f)(1), (2), (3), (4) or (5). The NQB >informs broker-dealers that wish to submit quotations in unqualified or new >securities that they must first file a Form 15c2-11 with the NASD. The NQB >notifies customers that they must remove their quotations from the NQS if the >Commission suspends trading in a security or the security has been de-listed >from an exchange or NASDAQ and is no longer eligible under an exemption from >Rule 15c2-11(f)(1) or (5). The NQB enjoys a good working relationship with the >Market Regulation Division of NASD Regulation (the "NASDR"). > > >In terms of content, we now provide Cusips®, issuer telephone numbers, 52-week >high/low, previous week volume, high/low and last, 15c2-11 piggyback eligible >notation, market maker symbol, ADR country, depositary, industry, and ratio of >outstanding to underlying shares. > > >Proposed Further Changes. The changes to the NQS have increased competition >among market makers and the availability of information. The NQB would like to >go further and make use of advanced technology further to increase >competition, transparency and fairness in the trading of non-NASDAQ, OTC >securities. Advancements in technology, and accompanying changes in the >regulatory structures, suggest the need for a thorough review of the rules >and regulations pertaining to non-NASDAQ OTC equities. > > >Briefly, we propose to automate and supplement our current offerings. The >NQS is currently a reference work and phone book of market makers in >over-the-counter ("OTC") securities. Our subscribers use their telephones >for price discovery and negotiation. The electronic NQS would create an >electronic bulletin board and e-mail facility to replace the telephone >process in the OTC market. If the NQS were automated, the broker-dealers >would benefit from efficiency. The public would benefit from competition and >transparency. Regulators would benefit from an electronic audit trail. > >Please email your comments to the SEC ASAP >regarding [Rel. No. 34-39670; File No. S7-3-98] > >E-MAIL: rule-comments@sec.gov > >You can download the release at: http://www.sec.gov/rules/propridx.htm > > >__________________________________ >Jim Ronay: Phone/Fax (512) 331-2028 > >Ronay Enterprises, Inc. providing guidance in preparing you >for capital access and corporate fine tuning for the new Millennium. > >Visit: www.tcaf.org >Texas Capital Access Forum >Chairman > > > > > >