The Bulletin Board Exchange

The NASD, acting through its subsidiary, The Nasdaq Stock Market, Inc. ("Nasdaq"), recently filed a proposal with the Securities and Exchange Commission to transform the OTC Bulletin Board Service ("OTCBB") from a dealer-driven quotation service into a marketplace of listed stocks called the Bulletin Board Exchange ("BBX").  Nasdaq’s goal in creating the BBX is to improve the capital markets for smaller companies, with the goal that the BBX will increase liquidity and gain recognition for these smaller companies.

The OTCBB is scheduled to be replaced with the BBX in the second quarter of 2003.  While the BBX is scheduled to launch at that time, given the recent overhaul of federal securities laws, including the enactment of Sarbanes-Oxley Act, the ultimate implementation of the BBX is undecided as Nasdaq is awaiting approval by the Securities and Exchange Commission.  Once the listing standards are approved by the Securities and Exchange Commission the BBX will begin accepting applications.

It is anticipated that Nasdaq will continue to operate the OTCBB for six months after the launch of the BBX.  Once a company becomes listed for trading on the BBX it will no longer trade on the OTCBB.  Companies listed on the OTCBB which do not become listed on the BBX or any other listed market will remain on the OTCBB for the six month time period.  At the end of six months, these companies must seek listing on another trading market.

To become listed for trading on the BBX a company must submit a listing application. The BBX would impose public interest standards identical to those utilized for the Nasdaq Small Cap Market and Nasdaq National Market.  These rules would give the BBX discretionary authority over the acceptance of a listing application, and whether to delist a company from the BBX.  These standards would include, but not be limited to a review of the SEC filing history of a company, and a review of the officers, directors and major shareholders of a company for regulatory issues.  Once an application is accepted by the BBX companies will request a new symbol for their new BBX security, which will be “XB” followed by three letters chosen by the company.  Companies listed on the BBX will be required to pay both initial and annual listing fees to maintain listing on the BBX. 

The BBX has proposed corporate governance requirements, but not financial requirements or minimum share price standards.

The corporate governance standards include:

• Companies must be current in SEC filings.

• Companies must distribute annual reports to its shareholders.

• Companies must conduct shareholder meetings on an annual basis.

• The Board of Directors must be contain at least one independent director.

• Companies must maintain an audit committee and an audit charter.

• Shareholder approval is required for transactions involving: grant of stock options to officers or directors; large, below market issuance of stock, acquisitions, and changes of control.

• Companies must engage auditors that are subject to peer review consistent with the American Institute of Certified Public Accountants procedures.

The following are the quantitative listing requirements for the BBX: 

·            100 Round-lot shareholders.

·            200,000 shares in the public float.

·            Minimum of one market maker.

·          No minimum share price, market capitalization, or other financial requirements.

While it is intended that the BBX will assist the thousands of smaller companies presently listed on the OTCBB by creating this listed market and thereby increasing liquidity, only time will tell whether or not this desired result will be achieved.  Many of these companies will not be able to afford the cost of complying with the corporate governance standards mentioned earlier and as a result these companies will, in all likelihood become listed on the Pink Sheets (a private trading system) which has no listing requirements and does not require companies to file periodic reports under the Exchange Act of 1934. 

The foregoing discussion is based entirely on information provided by the BBX, and the proposals submitted by the Nasdaq Stock Market to the Securities and Exchange Commission in connection with the formation of the BBX and readers are urged to visit the BBX website at www.bbxchange.com or attend one of the forums being held throughout the United States, for more information.  The BBX is holding informational forums periodically throughout the United States.  Readers are urged to attend.  The information is subject to change based upon revisions made to the aforementioned proposals.

Jeffrey M. Stein is a principal at Berkman Henoch Peterson & Peddy, P.C. in charge of the corporate and securities department.  Mr. Stein represents both public and private companies in all phases of corporate representation as well as investors in various financing transactions.  Mr. Stein can be reached at (516) 222-6200 x430, or via email at j.stein@bhpp.com.