BBX: The Market Exchange That Never Was
June 27, 2003
This past Thursday the NASDAQ made a very disappointing announcement. It was decided effective immediately, that NASDAQ will discontinue its efforts to launch the new BBX exchange. The current bulletin board market will keep its status quo. This is a crushing blow for many of the quality companies that were looking forward to moving from the OTCBB to the BBX. No one will ever confuse the OTCBB with the New York Stock Exchange (NYSE) but there are small, innovative, and worthy companies on the bulletin boards. The proliferation of junk companies on the OTCBB has historically been a deterrent for many investors. The BBX was supposed to have been a welcome change but unfortunately this will not be the case.
The BBX was a proposed new marketplace that would have eventually taken the place of the OTC Bulletin Board ® (OTCBB). The new exchange was billed as being a higher quality market. The BBX would have had qualitative listing standards, but with no minimum share price, market capitalization, or shareholder equity requirements. In addition, the BBX unlike the current OTCBB system will have an electronic trading system to allow order negotiation and automatic execution. The new system will bring increased speed and reliability to trade executions, as well as improve the overall transparency of the marketplace.
Listing Standards
The BBX proposed listing standards that were considerably higher than that of the OTCBB. Rules would have provided the BBX with the discretion to deny listing or delist an issuer to protect investors and the integrity of the BBX market in the context of both initial and continued inclusion. Imposition of this standard would consist of, among others, a review of all directors, officers and major shareholders for past regulatory or legal issues. Some of the requirements for listing are as follows:
Annual Shareholder Meetings, Proxy Solicitations and Quorum
Independent Director
Audit Committees/Conflicts of Interest
Shareholder Voting Rights
Auditor Peer Review:
Shareholder Approval
Distribution of Annual Reports, Availability of Quarterly Reports
The BBX listing standards also required issuers to demonstrate the existence of 100 round-lot shareholders and 200,000 shares in the public float, thus assuring that there is a minimum level of public ownership in these companies.
BBX Trading Rules
The BBX trading environment would have been considerably better than what OTC Bulletin Board® (OTCBB) has today. Three important Nasdaq rules that would have applied to the BBX are the following:
Market makers will be required to maintain continuous, two-sided markets, with quotes that are reasonably related to the market and that generally do not lock or cross the market.
Market makers will be required to report their short interest on a monthly basis, as market makers in Nasdaq National Market ® (NNM®) and SmallCap stocks do today.
Adoption of the same trade halt rule that currently applies to NNM and SmallCap issues. This provides BBX with broader authority consistent with its new relationship with BBX issuers.
The BBX would have continued to require market makers to quote in a designated minimum size, depending on the quoted price of a BBX issue. In addition, BBX proposes to limit the marginabilty of BBX issues by imposing a 100% maintenance margin requirement. BBX market participants will also be required to comply with the SEC’s Penny Stock Rules whenever a stock would qualify as a penny stock absent its listing on the BBX.
These changes are designed to help make the BBX a liquid, efficient, and orderly trading venue for this unique segment of the market.
BBX Automated Trading Systems
The BBX will offer a far superior trading and quoting system to that of the OTCBB. In place of today's use of telephone communications, the BBX will provide a dynamic quotation system, and a fully automated trading environment.
The proposed automated order delivery service (ODS) will enable BBX users to communicate electronically with one another to negotiate and confirm the execution of non-liability orders. It will offer much of the functionality of the SelectNet® service that is used for trading of Nasdaq National Market and SmallCap issues.
The automatic execution system will offer immediate execution of liability orders priced at the Best Bid or Offer (BBO). This will ensure market participants rapid access to the best-priced quotations in BBX issues.
These changes would have increased the speed, efficiency, and quality of execution in the BBX marketplace.
Market Regulation
NASD Regulation proposed the new automated trading systems because they would have enabled it to survey the BBX marketplace more effectively. Nasdaq would have provided the same level of intra-day surveillance for the BBX as is currently available for Nasdaq issues. Things that the regulators would have watched out for would have been:
Issuer news that warrants a news-related Trade Halt;
Backing away;
Excused withdrawals from the market, locked/crossed markets and trading during trading halts;
Best execution obligations;
Marking-the-close activity;
Anti-competitive practices by market makers;
Front-running of research;
Short interest reporting; and
Insider trading.
Conclusion
The BBX would have done wonders why cleaning out all of the companies on the OTCBB that have no business being a public company. The increased listing standards and automated trading systems would have been a drastic improvement to the OTCBB. With all the problems that have plagued regulators and exchanges within their own organizations it is very surprising that the BBX proposal was dropped completely.
The OTCBB does still have plenty of companies that deserve attention but the problem will continue to be the pretenders far out numbering the real deals.
June 27, 2003
This past Thursday the NASDAQ made a very disappointing announcement. It was decided effective immediately, that NASDAQ will discontinue its efforts to launch the new BBX exchange. The current bulletin board market will keep its status quo. This is a crushing blow for many of the quality companies that were looking forward to moving from the OTCBB to the BBX. No one will ever confuse the OTCBB with the New York Stock Exchange (NYSE) but there are small, innovative, and worthy companies on the bulletin boards. The proliferation of junk companies on the OTCBB has historically been a deterrent for many investors. The BBX was supposed to have been a welcome change but unfortunately this will not be the case.
The BBX was a proposed new marketplace that would have eventually taken the place of the OTC Bulletin Board ® (OTCBB). The new exchange was billed as being a higher quality market. The BBX would have had qualitative listing standards, but with no minimum share price, market capitalization, or shareholder equity requirements. In addition, the BBX unlike the current OTCBB system will have an electronic trading system to allow order negotiation and automatic execution. The new system will bring increased speed and reliability to trade executions, as well as improve the overall transparency of the marketplace.
Listing Standards
The BBX proposed listing standards that were considerably higher than that of the OTCBB. Rules would have provided the BBX with the discretion to deny listing or delist an issuer to protect investors and the integrity of the BBX market in the context of both initial and continued inclusion. Imposition of this standard would consist of, among others, a review of all directors, officers and major shareholders for past regulatory or legal issues. Some of the requirements for listing are as follows:
Annual Shareholder Meetings, Proxy Solicitations and Quorum
Independent Director
Audit Committees/Conflicts of Interest
Shareholder Voting Rights
Auditor Peer Review:
Shareholder Approval
Distribution of Annual Reports, Availability of Quarterly Reports
The BBX listing standards also required issuers to demonstrate the existence of 100 round-lot shareholders and 200,000 shares in the public float, thus assuring that there is a minimum level of public ownership in these companies.
BBX Trading Rules
The BBX trading environment would have been considerably better than what OTC Bulletin Board® (OTCBB) has today. Three important Nasdaq rules that would have applied to the BBX are the following:
Market makers will be required to maintain continuous, two-sided markets, with quotes that are reasonably related to the market and that generally do not lock or cross the market.
Market makers will be required to report their short interest on a monthly basis, as market makers in Nasdaq National Market ® (NNM®) and SmallCap stocks do today.
Adoption of the same trade halt rule that currently applies to NNM and SmallCap issues. This provides BBX with broader authority consistent with its new relationship with BBX issuers.
The BBX would have continued to require market makers to quote in a designated minimum size, depending on the quoted price of a BBX issue. In addition, BBX proposes to limit the marginabilty of BBX issues by imposing a 100% maintenance margin requirement. BBX market participants will also be required to comply with the SEC’s Penny Stock Rules whenever a stock would qualify as a penny stock absent its listing on the BBX.
These changes are designed to help make the BBX a liquid, efficient, and orderly trading venue for this unique segment of the market.
BBX Automated Trading Systems
The BBX will offer a far superior trading and quoting system to that of the OTCBB. In place of today's use of telephone communications, the BBX will provide a dynamic quotation system, and a fully automated trading environment.
The proposed automated order delivery service (ODS) will enable BBX users to communicate electronically with one another to negotiate and confirm the execution of non-liability orders. It will offer much of the functionality of the SelectNet® service that is used for trading of Nasdaq National Market and SmallCap issues.
The automatic execution system will offer immediate execution of liability orders priced at the Best Bid or Offer (BBO). This will ensure market participants rapid access to the best-priced quotations in BBX issues.
These changes would have increased the speed, efficiency, and quality of execution in the BBX marketplace.
Market Regulation
NASD Regulation proposed the new automated trading systems because they would have enabled it to survey the BBX marketplace more effectively. Nasdaq would have provided the same level of intra-day surveillance for the BBX as is currently available for Nasdaq issues. Things that the regulators would have watched out for would have been:
Issuer news that warrants a news-related Trade Halt;
Backing away;
Excused withdrawals from the market, locked/crossed markets and trading during trading halts;
Best execution obligations;
Marking-the-close activity;
Anti-competitive practices by market makers;
Front-running of research;
Short interest reporting; and
Insider trading.
Conclusion
The BBX would have done wonders why cleaning out all of the companies on the OTCBB that have no business being a public company. The increased listing standards and automated trading systems would have been a drastic improvement to the OTCBB. With all the problems that have plagued regulators and exchanges within their own organizations it is very surprising that the BBX proposal was dropped completely.
The OTCBB does still have plenty of companies that deserve attention but the problem will continue to be the pretenders far out numbering the real deals.
