SEC issues rules on OTC market

With the recent success of several initial public offerings (IPOs) and secondary share sale, the Securities and Exchange Commission (SEC) has issued rules governing the trading of securities over-the-counter (OTC) or outside an exchange.

Jose P. Aquino, head of the SEC’s Market Regulation Department, said the rules will regulate the operation and use of an OTC market by brokers, dealers, and salesmen who trade securities in the secondary market.

Aquino said a person who wishes to trade over-the-counter should register with the SEC as a broker, dealer or salesman in an OTC market.

He added that brokers and dealers whose current registration allows them to trade only in an exchange or alternative trading system (ATS) must amend their registration to specifically reflect their intention to trade securities in an OTC market. The amendment must be made within 45 days from the effectivity of the OTC rules.

Among those eligible to be traded in an OTC market are registered securities, exempt securities, securities of public companies and those securities declared by the SEC as qualified for trading in an OTC. These include debt securities like corporate bonds and government securities.

Aquino said banks, investment houses, insurance companies, pension funds, investment companies or mutual funds are qualified to buy or sell securities in an OTC market.

He said retail investors can also participate in the OTC market through the service of a broker, investment house or bank.