SEC spots way to starve most suspicious penny stocks

The Securities and Exchange Commission (SEC) headquarters in Washington, DC. (Bloomberg pic)

NEW YORK: US regulators seeking to clean up over-the-counter stock trading think they’ve found some promising fixes.

The Securities and Exchange Commission is considering whether to forbid market makers from providing price quotes to retail investors for OTC companies that haven’t released financial reports for an extended period of time, according to Brett Redfearn, who runs the regulator’s division of trading and markets. No quotes effectively means no trading.

“If a company is a dark company and listed in the OTC market and hasn’t put out financials for six months, maybe it shouldn’t be quoted or offered to retail investors,” Redfearn said Monday at the Securities Industry and Financial Markets Association’s annual meeting in Washington.

He said that fix was among several possibilities floated at a round-table discussion on retail investor fraud last month.

Generally speaking, OTC stocks are too small, immature or financially unstable to be traded on full-fledged exchanges like the NYSE or Nasdaq.

Redfearn’s boss, SEC Chairman Jay Clayton, said earlier this year that the amount of suspicious behaviour in penny stocks – a shorthand for the darker corners of that space – shocked him when he took office.

The ban Redfearn discussed Monday would’ve erected a hurdle for Neuromama Ltd. The SEC halted that OTC stock in 2016, citing fears of manipulation, after it soared to a US$35 billion (RM145 billion) valuation despite failing for years to release financial data.