SEC Rule 15c2-11 Amendment Reshapes OTC Market Dynamics: Premium Tiers Surge While Pink Segment Faces Pressure

When the U.S. Securities and Exchange Commission (SEC) implemented the Rule 15c2-11 amendment on September 28, 2021, it fundamentally altered the competitive landscape of over-the-counter trading. A comprehensive analysis by Oxford Metrica on OTC Markets Group Inc. (OTCQX: OTCM) revealed striking divergences in how different market segments responded to this regulatory shift.

The Data Tell A Clear Story: Premium Tiers Win, Pink Loses

During a 140-day window following the rule’s enactment, the numbers painted a vivid picture of market restructuring:

The most dramatic finding concerned valuation performance. Securities trading on OTCQX and OTCQB tiers appreciated by 16.7%, while Pink-tier issuers gained only 1%. For companies that successfully upgraded to premium markets, the reward was even more substantial—a 21% value increase compared to just 2.7% losses for those downgrading to Pink Limited status.

The 23.7% average value differential between upgrades and downgrades underscores the market’s strong preference for transparency and improved governance standards. This preference extended beyond prices into trading mechanics: upgrades to OTCQB and OTCQX tightened spreads by 3%, while downgrades saw spreads widen by 6%, signaling improved and deteriorated market liquidity respectively.

Perhaps most telling was the trading volume metric. Issuers sliding down to Pink Limited experienced an almost threefold decrease in relative trading activity, reflecting how investors vote with their participation.

Understanding The Rule Change: Why Market Makers Matter

Before September 2021, the regulatory framework contained a critical loophole. The original Rule 15c2-11 permitted “piggyback” quoting—once one market maker published quotations for 30 consecutive days, competitors could quote the same security indefinitely without conducting independent information reviews. This created information asymmetries that undermined market integrity.

The amendment tightened this mechanism. Market makers must now maintain “a reasonable basis for believing that the information is accurate and from reliable sources,” and cannot simply follow other quotations without ongoing due diligence. The SEC acknowledged the problem directly: market makers were quoting without reviewing updated information, creating conditions where stale or inaccurate data dominated pricing decisions.

The Bifurcation Of OTC Markets: A Merit-Based Sorting

OTC Markets Group has structured its three tiers—OTCQX (Best Market), OTCQB (Venture Market), and Pink (Open Market)—as a natural progression reflecting disclosure quality and operational standards. The 2021 rule amendment accelerated the sorting process.

Companies maintaining premium-tier status on OTCQX or OTCQB benefited from stricter disclosure requirements and enhanced scrutiny. Investors responded by concentrating trading activity and tightening bid-ask spreads, reducing transaction costs and improving price discovery. The infrastructure supporting these markets—featuring multiple active market makers competing on quality and pricing—functioned more efficiently as information asymmetries narrowed.

Conversely, issuers unable or unwilling to meet premium standards found themselves isolated. Trading volumes contracted sharply, spreads widened, and valuations compressed. The market essentially implemented a real-time referendum on governance quality.

Regulatory Intent Meets Market Reality

The SEC’s amendment reflected 15 years of evolving standards under OTC Markets Group’s market-tier framework, first introduced in 2007. By tightening information verification requirements, regulators aimed to align OTC trading practices with transparency principles that had become standard in developed markets.

The data confirms the amendment achieved its objectives. Companies meeting OTCQB and OTCQX standards captured investor confidence and liquidity premiums. The premium tiers now host major international securities including blue-chip names like adidas AG (OTCQX: ADDYY), Grayscale Bitcoin Trust (OTCQX: GBTC), Heineken N.V. (OTCQX: HEINY), and Air Canada (OTCQX: ACDVF).

What This Means Going Forward

The Oxford Metrica report concludes with a straightforward assessment: the regulatory environment now rewards transparency and punishes information opacity. Issuers trading in Pink tiers face a strategic choice—upgrade to OTCQB or OTCQX standards to access the valuation and liquidity premiums the market increasingly offers, or accept constricted trading conditions and compressed valuations.

This creates incentives aligned with investor protection and market quality. As OTC Markets operates roughly 12,000 securities across its platforms, the regulatory sorting will likely continue reshaping capital flows toward higher-tier markets where disclosure standards and market-maker competition maintain tighter spreads and more efficient pricing.