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Letter from Regional Investment Bankers Association
Chapman, Spira & Carson - Disscusion

From: Robert Jordanian
Date: 3/29/99
Time: 4:03:42 PM
Remote User:


I recently received a letter from the Regional Investment Bankers Association that went as follows:

"As president of Regional Investment Bankers Association, I know the importance of preserving the integrity of the OTC Bulletin Board, and access to public equity capital, for the benefit of all participants - market makers, issuers, and investors alike. And I know the devastating impact that microcap issuers and investors will face if legitimate market makers are driven from these markets and cease to trade these securities.

To help preserve this critical part of the securities market, so companies like yours will continue to be traded by reputable and legitimate market makers, I am writing to alert you to a proposed rule amendment initiated by the Securities and Exchange Commission (SEC) that could have a disastrous impact on both the liquidity and the value of your company's stock.

The proposal to amend Rule 15c2-11 would require market makers in OTC Bulletin Board and Pink Sheets stocks to maintain a file on every stock they trade, study each companies' financial statements, be alert for signs of potential fraud, and provide information on non-reporting issuers to customers who request it.

We believe that the SEC is well-intentioned in its efforts to combat microcap fraud, but fails to recognize the impractical and onerous burden this amendment would place on legitimate market makers. Under these amendments, the responsibility of regulating and policing small company issuers, whether reporting or non-reporting, would effectively shift from the SEC to the market makers who trade in these stocks.

Market makers who choose to continue trading these issues would either risk unlimited liability for the accuracy and truthfulness of financial information over which they have no control, or have to undertake the significant additional costs related to effective due diligence on each and every issue for which they make a market. Still, they would leave themselves open to crushing lawsuits from plaintiffs' attorneys and disgruntled investors anytime a stock turns down.

No legitimate market maker is going to accept that responsibility. Instead, if this rule is implemented, you and I are going to see legitimate market makers cease to quote OTC Bulletin Board and "Pink Sheets" stocks, including your company's securities.

The end result means no liquidity for small company stocks and, consequently, a loss in price transparency, bigger spreads, a drop in stock prices -- and less protection from fraud for microcap investors!

In fact, according to respected Business Week investment commentator Gary Weiss, this rule would play right into the hands of scam artists who manipulate stock prices, since they would dominate the microcap market once legitimate traders pulled out.

In short, these proposed amendments would irreparably damage both the markets and the companies whose securities are traded in these markets. That's why you need to make you voice heard at the SEC now!

I am asking you to write a letter on your company's letterhead today and voice your opposition to the proposed amendments to Rule 15c2-11, the rule that governs quoting of your company's stock on the OTC Bulletin Board and the National Quotation Bureau's "Pink Sheets".

Send three (3) copies of your letter to:

Jonathan G. Katz Secretary, Securities and Exchange Commission Mail Stop 6-9 450 Fifth Street, NW Washington, DC 20549

Or , if it's more convenient, you can e-mail your comments to:

Your letter or e-mail should refer to File No. S7-5-99, and it must reach the SEC before the April 7, 19999, deadline for the comment period.

If possible, please send copies of your comments to SEC Chairman Arthur Levitt and Commissioners Isaac C. Hunt, Jr., Norman Johnson, Paul R. Carey and Laura Unger. And call or write your Representative, both your Senators, and your state securities regulator.

Please don't rely on other to get the job done -- write your letter and e-mails today!


Jeffery Adduci


What the hell is this about? I took me forty years to go public and now I get something like this. What should I do about it? Who needs this crap?

Last changed: March 17, 2000