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Guest Post By: Jason Paltrowitz

We often hear questions from foreign issuers and their respective exchanges surrounding the decision to pursue secondary trading in the U.S. Many harbor the misconception that cross-trading in the U.S. will lead to a loss of trading volume and drain in liquidity from their primary home market.

 

The Market Impact of Cross-Trading

Understanding the market impact of cross-trading on OTCQX was the basis for a new independent study conducted by Oxford Metrica. This new study titled, “The OTCQX Advantage: Benefits for International Companies” reports an increase in U.S. ownership, improvement in home market liquidity and enhanced shareholder value for international companies that choose the OTCQX® Market.

In fact, the international companies included in this research, with a primary listing outside the U.S., experienced a 28% increase in trading volume by number of shares within their home market after joining the premium OTCQX® Best Market and a 7-fold increase in U.S. ownership.

 

Access to U.S. Capital Markets

As access to the U.S. Capital Markets becomes even more important for foreign issuers, companies need to determine the most efficient and effective way to expand their footprint. As the study empirically shows, cross-trading on OTCQX not only diversifies the company’s U.S. shareholder base, but also positions the company to appeal to those investors and broker dealers who prefer securities that trade and settle in U.S. dollars during U.S. trading hours.

OTCQX is home to a broad universe of companies comprising an array of sectors and industries from established, multinational blue-chip companies to global market innovators. The roster of large, global companies includes issuers such as Adidas, Air Canada, Heineken and Wacoal Holdings Corp. These companies share a commitment to providing their investors with the premium trading experience the OTCQX® Market delivers.

 

As the results of the study confirm, companies that trade on OTCQX experience a positive impact in both their home and U.S. markets.

 

On average, companies experience a home market liquidity increase of 28% and OTC Market increase of 37% after admission to OTCQX. Value creation was measured and analyzed for 180 trading days after admission to OTCQX.

The study also points to positive liquidity effects for all companies regardless of size. Firms whose trading volume was in the lower half of the distribution by size had an increase of 43% in home market trading volume and those whose trading volume was in the upper half increased by 12%. The positive liquidity reactions were seen across geographies including Canada (35%), Asia Pacific (30%) & Europe (12%).

 

Advantages to Trading on OTCQX vs. a National Exchange

There are several clear advantages to trading on the OTCQX® Market versus a national Exchange.

For global IROs with limited budgets, U.S. exchange requirements and standards often prove:

• Duplicative
• Time-consuming, and
• Cost-prohibitive

Cross-trading on the OTCQX® Market enables a foreign issuer the ability to:

• Leverage its existing reporting standards
• Make disclosures available in the U.S.

The simplified requirements help to remove trading restrictions and complement a company’s home market reporting and investor relations process. In turn, a company achieves better visibility and a fair valuation in the U.S. public market, while increasing the effectiveness of its investor relations program.

We hope that the results of this recent study prove beneficial for those international firms who are seeking to diversify their shareholder base, increase their global footprint and utilize the OTCQX Market.

 

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About Jason Paltrowitz:

Jason Paltrowitz is Executive Vice President, Corporate Services at OTC Markets Group, where he is responsible for managing the firm’s international and domestic Corporate Services business. Drawing upon his expertise in cross-border trading and as a recognized proponent of Reg A+ and small company capital raising, Jason is an advocate for small cap issuers, start-ups, and entrepreneurial innovators working to alleviate the cost, time and complexity associated with being a public company. Prior to joining OTC Markets in October 2013, Jason was Managing Director and Segment Head at JP Morgan Chase responsible for the custody, clearing and collateral management business in the Corporate and Investment Bank division. Jason also held multiple senior management positions at BNY Mellon, most notably, as Head of M&A for the Financial Markets and Treasury Services Sector and 11 years as the Head of the Global Capital Markets Group in the Depositary Receipt Division. Jason currently serves on the Board of Directors of the Crowdfunding Professional Association (CfPA) and also served as a member of the Board of Directors at OTC Markets Group from 2008 – 2011. Jason holds a Bachelor’s degree in International Relations from Boston University and received his MBA from the NYU Stern School of Business.

 

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