How The OTC Market’s Research Marketplace Overcomes The Paid-for Research Reputation
On Sept. 19th, the OTC Markets introduced its online equity Research Marketplace for OTCQX® and OTCQB® companies seeking third-party research analysis.
Paid-for research has been a staple of the micro-cap space for years. With little incentive for third party analysts to cover small securities (like those traded on the OTC), issuers only true option for coverage of their stock has been to pay for it. There are countless “research firms” providing paid-for analysis to issuers but their research is often more driven by making the issuers happy by writing a glowing report and increasing the issuers share performance (thus creating more paid for business for the research firm). Some research firms even accept stock as compensation, creating an even bigger conflict of interest.
Recently, equities.com discussed the Research Marketplace with some of the key players to find out what they are doing differently than the other research options out there.
“The paid-for research market doesn’t have the best reputation,” says Paltrowitz. “Quite honestly, there’s a lot of bad actors, so we had a few criteria our providers had to meet.” Paltrowitz goes on to list three criteria for research firms participating in The OTC Market’s Research Marketplace.
How The OTC Market’s Research Marketplace Overcomes The Paid-for Research Reputation with 3 Criteria:
1. Research providers can not accept stock as payment.
2. Research providers must be regulated in some way. Of the three initial research firms in the marketplace, one is an SEC-regulated FINRA member, and the other two are regulated out of the UK by the Financial Services Authority (FSA).
3. The research providers must maintain editorial independence. Paltrowitz says, “If you look at the companies we have selected, all of them make clear that their research is unbiased. Companies can comment on the research, but in terms of the actual content, none of them allow clients to change what has been written.”