A Short History of the Over-the-Counter Stock Market

ACRL currently trades on the over-the-counter markets, which has been deemed by many as the "wild, wild west" of stock trading platforms. This moniker comes from the platform's reputation, which has (rightly or wrongly) been built up over years of manipulation and illegal activity in some (not all) stocks.

Click here to view / download
an inforgraphic on the history
of the OTC markets

One way to understand this is to look at the history of the over-the-counter markets overall. We've attempted to provide a summary that might help.

Stocks first began trading during the middle ages when the first exchanges appeared in Europe.^[i] Ownership in pretty much any company, real or not, could be purchased, sold or swapped in some way, with little or no regulation.

By 1792, an exchange was started in America that set listing requirements (ostensibly to help ensure that only legitimate companies traded) and charged fees for listing.^[ii] In 1817, this platform was named the New York Stock Exchange. This was followed, in 1842, by a competitor, the American Stock Exchange.^[iii]

These exchanges would exclude companies that wanted to trade stocks but couldn't afford the fees or couldn't meet a minimal listing requirement. In the early 1870's, these unlisted stocks were bought and sold in a retail setting where certificates and cash were literally traded "over-the-counter", hence the name.^[iv]

By the early 20^th century, a man named Roger Babson came up with the idea of publishing a circular that listed information about securities not listed on the exchanges. A few years later, a man named Arthur Elliott began compiling and publishing price and volume information.

Babson and Elliott joined forces in 1913 to form the National Quotation Bureau (NQB), which issued yellow colored sheets containing information on bonds, and pink colored sheets containing information about stocks. This is where the term "pink sheets" originated.

For decades, the pink sheets published information on stocks that were not traded on the major exchanges. There were many legitimate, small companies listed on these sheets that did well and provided terrific returns for their investors.

However, the pink sheets were largely unregulated, and they became a haven for criminals that would list stocks of companies that may or may not truly exist, manipulate prices and prey on unsophisticated investors.

In 1971, the NASDAQ was formed and many of the legitimate pink sheet stocks moved to this exchange. This left many small, legitimate companies that could not meet the requirements to be listed on NASDAQ or the other higher exchanges, on the pink sheets listed with scams.

In 1990, the SEC began an experiment of offering a trading medium for these stocks that would have no listing requirements and could be managed by the National Association of Securities Dealers (NASD, a self-regulating group overseeing the securities industry). This platform became the Over-the-Counter Bulletin Board (OTCBB) and was a huge success by all accounts.^[v] By 1993, an automated system published trades within 90 seconds of the transaction.^[vi] The system was successful and made permanent in 1997.^[vii]

In 1999, to provide another level of legitimacy to these smaller companies and to weed out the scams, the SEC required companies trading on the OTCBB to provide quarterly and annual filings and disclosures, almost to the same standards of larger companies on the higher exchanges. Those companies that did not provide this information would be dropped back down to the pink sheets.^[viii]

In the ensuing years, the NASD had changed its name FINRA and in 2008, FINRA decided to divest itself of the OTCBB.^[ix]

OTC Markets Group (the descendant of Babson and Elliott's NQB) established a platform for the OTCBB stocks and many OTCBB stocks migrated there. OTC Markets Group installed several tiers of companies in its quotation system and currently provides real time quotes and an orderly trading platform for many companies that cannot qualify for the higher exchanges. These tiers are as follows:^[x]

• OTCQX, the highest tier; companies have to meet some stringent criteria to be listed here. At this writing, 448 securities trade at this level
• OTCQB; to be listed here, companies must provide current financial and management reports (SEC "reporting" companies that are current in their filings generally qualify for this tier). Many former OTCBB stocks migrated here. At this writing, 925 securities trade at this level
• Pink Sheets, which lists 8,373 securities and consists of several sub tiers:
  • Pink sheets, Current Information: these are companies that provide current, periodic management and financial information in accordance with the International Reporting Standard. Companies here may or may not be "reporting" with the SEC.
  • Pink Sheets, Yield Sign / Limited Information: these are companies that not current in their reporting and might be having some kind of "distress".
  • Pink Sheets, Stop Sign / No information: this tier is for companies that do not, for whatever reason, disclose information publicly (or the information they have disclosed is older than 6 months).
  • Pink Sheets, Caveat Emptor: these are companies that have been part of "a spam campaign, questionable stock promotion, investigation of fraudulent or other criminal activity, regulatory suspension or disruptive corporate actions."

As the companies on the OTC Markets grow, some "graduate" to higher level stock exchanges. In 2015, 60 companies moved from the OTC Markets to either NASDAQ, NYSE Market (formerly the American Stock Exchange) or the NYSE.^[xi]

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Endnotes

^[i]Andrew Beattie, "The Birth of Stock Exchanges", Investopedia; retrieved from: http://www.investopedia.com/articles/07/stock-exchange-history.asp

[ii] Laura Bramble, "How the Stock Market Was Started and by Whom", Houston Chronicle, Houston, TX; retrieved from http://smallbusiness.chron.com/stock-market-started-whom-14745.html

[iii] Ibid.

[iv] "OTC History", wall-street.com, Ft Lauderdale, FL; retrieved from http://microcapleaders.com/otc-history/

[v] Carl Luft, Ph.D., Associate Professor of Finance DePaul University, Lawrence M. Levine. Director, Corporate Finance Services, American Express Tax and Business Services Inc., Scott Larson, Intermediate Research Analyst, Allstate Insurance. "Over the Counter Bulletin Board Exchange Market Structure, Risk and Return", allstocks.com, Westlake, OH; retrieved from: http://www.allstocks.com/pennystocks/OVER_THE_COUNTER_BULLETIN_BOAR/over_the_counter_bulletin_boar.html

[vi] "93-83 SEC Approves New Trade Reporting Requirements for Pre-Opening Transactions And Convertible Debt Transactions", FINRA Manual, Financial Industry Regulatory Authority, Inc. Retrieved from: http://finra.complinet.com/en/display/display_main.html?rbid=2403&element_id=1556

[vii] "National Quotation Bureau" retrieved from: http://www.investopedia.com/terms/n/national-quote-bureau.asp

[viii] Op. Cit., "OTC Bulletin Board"

[ix] Ibid.

[x] The following data can be found at the OTC Markets Group website: http://www.otcmarkets.com and the OTC Markets Newsletter, June 2016, retrieved from http://www.otcmarkets.com/content/doc/OTCNewsletter/June2016Newsletter.html

[xi] OTC Markets Newsletter, January 2016, retrieved from: http://www.otcmarkets.com/content/doc/OTCNewsletter/January2016Newsletter.html

Excitement about gold!

Everybody seems to be excited about Gold!

In early 2016, we started to see upbeat reports on the rising price of gold and the increased interest in locating new potential mining properties.  This plays well for Atacama Resources International (ACRL), an emerging US public company with significant mining properties in the Kirkland Lake area.  Kirkland Lake is home to existing gold mining companies and ACRL’s 42 claims, spread over 1680 acres, and is within minutes of the existing, producing gold mines.

The trade press has been vocal about the prospects of a new ‘gold rush’ globally and the greater Kirkland Lake area is a major source of gold in the Canadian mining industry.

A couple articles worth reviewing are:

http://www.cnbc.com/2016/06/09/why-big-investors-think-its-time-to-hoard-gold.html

http://www.reuters.com/article/us-gold-mining-growth-idUSKCN0YU1C5

It is clear that the market conditions that impacted negatively on gold prices over the past several years have changed and we can expect to see continuing rising gold prices in the future.  The boom may well last for years!

ACRL has actively worked portions of its Kirkland Lake mining property with test drills and assay results can be expected in July.  We will not comment on our expectations regarding the assay results in terms of gold concentrations at various depths but our proximity to successful gold mining operations in the area makes it interesting!

The company is always looking at other properties that might become available and these explorations are not limited to gold.  Properties with proven concentrations of graphite, other strategic minerals and even diamonds are being reviewed.

Impaired driving: test for cognitive awareness, not marijuana

On March 16th, a 30-year-old man was spotted in a 2011 Nissan Maxima “speeding and driving recklessly” in the town of Charlton, Massachusetts. At the same time, Thomas Clardy, a police officer, husband and father of seven kids, aged 4 to 17, was parked in his patrol car in a breakdown lane.

You can guess what happened next. The Maxima swerved across the lanes of traffic and plowed into the patrol car at 81 mph. Mr. Clardy was killed. The driver of the Nissan, according to prosecutors, was “stoned behind the wheel” – high on medical marijuana[1].

With marijuana becoming legal in multiple states, and with the probability of its becoming decriminalized nationwide, the issue of marijuana intoxication is coming to the forefront.

The question is simple, and apparently very difficult to answer for everyone: When it comes to pot use, what exactly constitutes impairment?

We’ve defined the limit for blood alcohol impairment, nationwide, as 0.08% BAC (blood alcohol content). That standard seems to suit everyone.

When it comes to pot, however, things get a lot murkier.

Detecting use of pot is not all that difficult. The active ingredient in pot is tetrahydrocannabinol – or, THC. After a person uses pot, THC can be found in the blood and the saliva[2] – and there’s at least one company that is working on detecting THC using a breathalyzer[3].

The problem is not whether the individual has used marijuana; the problem is whether that person is impaired. And, as a recent study by the AAA Foundation for Traffic Safety concluded, the amount of marijuana ingestion that would cause impairment varies widely – very widely – from person to person.

Mary Wisniewski, a reporter with the Chicago Tribune, reported that the study found that “drivers can have a low level of THC, the active ingredient in marijuana, in their blood and be unsafe behind the wheel, while others with relatively high levels may not be a hazard.”[4]

States have been grappling with the issue for some time now, and the response has gone as far as a ban on any driver with any marijuana in his/her system.

The problem is that the effect of marijuana in a human being cannot be quantified in the same way as the effect of alcohol. There is too much variation from person to person, and the amount of THC in a given individual is not a reliable indicator of impairment.[5]

The question needs to be re-focused. “It’s really not about whether a person smoked a joint, took drugs or drank a few beers,” said Glenn Grant. “It’s about whether that person is impaired – no matter what the reason.”

Mr. Grant is the CEO of Atacama Resources International, which has the exclusive license to a smartphone application called Good2Drive. This app consists of a quick test developed by researchers at Stanford University. It doesn’t distinguish whether a driver is drunk, drowsy, taken drugs or smoked a joint. Rather, it measures a person’s cognitive ability and awareness, and therefore, the person’s suitability to get behind the wheel.

“When someone is drunk or stoned, and they’re getting behind the wheel of a car, the reason for that impairment is not critical," Mr. Grant continued. "What’s important is that they be stopped – immediately. They can go to an AA meeting or whatever afterwards; but the most important thing at the moment that person grabs the keys is whether he or she is fit to drive. Our app tests for that fitness.”

The existence of a standard level for marijuana use may or may not have prevented the driver of the Nissan from getting behind the wheel; but perhaps we should consider something . . . if the Nissan driver had failed the Good2Drive test and not driven that day, Mr. Clardy might still be alive.

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[1] You can read a news report about the incident here: http://www.bostonherald.com/news/local_coverage/2016/05/prosecutor_driver_high_on_medical_weed_in_fatality

[2] The ABCs of Marijuana Drug Testing, NORML and the NORML Foundation, Washington DC, 2016; see: http://norml.org/marijuana/drug-testing/item/the-abcs-of-marijuana-and-drug-testing

[3] http://www.cbc.ca/news/canada/british-columbia/cannabix-technologies-testing-marijuana-breathalyzer-prototype-1.3283771

[4] Mary Wisniewski, "Legal limits for driving on pot not backed by science, study shows", The Chicago Tribune, May 10, 2016; retrieved from: http://www.chicagotribune.com/news/local/breaking/ct-marijuana-driving-study-aaa-20160509-story.html

[5] A quick Google search can bring forth a lot of information on this point, but the bottom line is, as Dr. Carl Hart wrote, "Marijuana can cause temporary impairment, and it can lower a person’s level of vigilance or focus. However, THC, the principal psychoactive chemical in marijuana, can remain in the body for up to four weeks." He also stated: "In other words, you cannot predict a person’s level of impairment based on THC levels found in their system." http://www.drcarlhart.com/marijuana-tests-dont-indicate-impairment/

Gold mining stock cycles?

Richard Kaiser is the founder and president of Yes International, a 25-year-old investor relations firm that specializes in stocks listed in the secondary markets. He acts a conduit of communication between the companies he works for and their investors.

He has vast experience representing, in particular, mining company stocks.

He’s seen a lot in the past quarter decade and he has noticed an interesting bit of information about apparent mining stock trends.

"Generally speaking, every 3 to 5 years or so – sometimes longer, sometimes shorter – it seems to me that we see something of a purge in mining stocks, in the secondary / OTC markets at least,” Mr. Kaiser said.

“Mining stocks emerge and disappear generally along the course of a cycle. The good ones tend to weather those cycles and the weaker ones go away. It’s really quite interesting.”

We gathered some data to see if a trend could be identified. A chart of the Barron’s Gold Mining Index (BGMI) closing prices since 1971 certainly resembles the roller coaster Mr. Kaiser describes:

[Note: this chart was generated by Sharelynx Gold, World Gold Charts generator of the BGMI index since 1971; source: http://www.sharelynx.com/chartstemp/free/fchart-BGMI.php]

PEAK 1 (about 1974)	PEAK 2 (about 1980)	6 years
PEAK 2 (about 1980)	PEAK 3 (about 1983)	3 years
PEAK 3 (about 1983)	PEAK 4 (about 1987)	4 years
PEAK 4 (about 1987)	PEAK 5 (about 1990)	3 years
PEAK 5 (about 1990)	PEAK 6 (about 1994)	4 years
PEAK 6 (about 1994)	PEAK 7 (about 1997)	3 years
PEAK 7 (about 1997)	PEAK 8 (about 2005)	8 years
PEAK 8 (about 2005)	PEAK 9 (about 2008)	3 years
PEAK 9 (about 2008)	PEAK 10 (about 2011)	3 years
PEAK 10 (about 2011)	Cycle ongoing (as of early 2016)	5 years and counting

Note the peaks and valleys over that period of time:

The peaks seem to happen, on average, about 4 years or so, as Mr. Kaiser stated.

So, where are we and what does that mean in terms of history? Mr. Kaiser’s opinion is:

“It appears – and I have to stress that word ‘appears’ – that we may be at the bottom of a long valley in a cycle. I can’t say for sure, of course, but it certainly looks to me like the cycle is beginning to head upward.”

”Small exploration mining stock like ACRL could be good opportunities with a potential new ‘BULL’ market in precious metals.”

Now, Mr. Kaiser himself “gets” that there are a myriad of other factors at play here that could affect the prices of these stocks as a group, or individually, one way or the other. “If I could find a cycle or pattern that emerged every time with perfect regularity, I’d be a much wealthier man”, he says.

Still, it must be said that the past has presented an interesting scenario. Note also that, today, we seem in an extra-long valley – one of the longer ones – and, while this is certainly NOT meant to be investment advice, this may be an indicator that these types of stocks are something to discuss with your financial advisor.

The opening tip-off

Thank you for taking a look at our first blog post! We hope you will find our future posts interesting and somewhat provocative (in a good way).

By way of introduction, here’s a little bit about us:

Who we are

We are a group of experienced, seasoned business people who have come together to take advantage of certain opportunities.

Our goal is simple: to acquire and develop strategic opportunities as we find them.

To that end, we have interests in the following two areas:

• the mining industry: we have 42 mining claims near Kirkland Lake, Ontario, Canada area (a known gold mining area). Our minerals of interest (initially) are graphite and gold.
  
• also, we recently acquired a smartphone app called Good2Drive. This unique app, developed by a Stanford University research professor, consists of a short, simple test one can take before getting behind the wheel of a vehicle. The test quickly measures the person’s cognitive ability and will tell whether the driver is impaired.
  

These very different industries, and acquisitions come with existing management teams and experienced personnel in place and working.

What we will be blogging about

Between us, we have a staff of experts that are looking forward to posting articles in our given areas of expertise.

We will strive to not be boring . . . we would hope future posts would be about some unexpected, but interesting things within our focus areas. For example, maybe our CFO won’t provide a post on how to prepare a financial statement, but rather, some tips on how you can use that boring data to plan for exciting, explosive growth.

We will also be using this as a forum to communicate with our shareholders. It will be one of many tools through which we will provide news, provide some detail on releases, talk about our strategic vision and listen to feedback about a variety of topics.

Why we’re blogging

There are several reasons why we are blogging. Here are a few:

1. It’s effective
2. It’s immediate 
3. It’s available 
4. It’s interactive, and, last but not least, 
5. It’s inexpensive. 

How you can be involved

We encourage you to leave feedback. We are offering a way in which you can respond to posts in any way you wish. We want to know what you think about all this.

That being said, we will be monitoring those comments and we will decide what gets posted and what doesn’t. We will not post comments that contain coarse language or target or hurt individuals.

We will post provocative, interesting thoughts you may have. We want to hear your ideas.

So, thank you once again for stopping by! We hope to make this a successful and interesting forum!