Yesterday, the SEC made significant changes to the standards brokers must meet in order to quote stock OTC.

These changes are detailed by amending SEC Rule 15c2-11; here are the important take-aways, bottom-line: more information is needed before a broker is allowed to deal in OTC stock (those securities not benefited by the disclosures required by listing on the recognized trading platforms); many OTC stocks have not provided this kind of information for a long time; some may not have the resources or the interest in complying.

These changes may thus make it impossible for investors to purchase OTC securities in certain companies. But those potentially most impacted are the current owners of OTC shares which now the brokers cannot list. Owners may be stuck as investors unless they can sell their shares on a negotiated one-off with a known buyer.

To soften the blow: there is a nine-month phase-in; companies can apply to the SEC for relief (not clear what the criteria are); the SEC may permit establishment of a so-called expert market where OTC shares without requisite filed information under 15c2-11 may be traded by (undefined) sophisticated or professional traders.

Interestingly, the SEC has been pushing to democratize access to the initial private sale of company shares by breaking down the two-tier system that permitted the smart and wealthy to buy while excluding the Main Street investors; and now, on the OTC resale side, they are suggesting institution of a two-tier model. How all this sorts out will be something to behold.