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Friday, December 22, 2006

Pink Sheets continues doing good stuff

Pink Sheets LLC announced a that a law firm has been appointed as the first "DAD" in it's program for creating multiple classes of companies listed on the Pink Sheets.
Ellenoff Grossman & Schole LLP (EGS), a New York City-based law firm that specializes in corporate and securities law, has been accepted as the first Attorney Designed Advisor for Disclosure (DAD) for OTCQX listed companies. As a DAD, EGS will provide general corporate legal advice with respect to a clients' OTCQX listing requirements, as well as securities law compliance, generally.
The OTCQX is the premier class of Pink Sheets companies which have "substantial operating businesses and provide credible disclosure to the public". Each of these companies must nominate a DAD to guide them on the OTCQX requirements.

The reason I believe the move to create these new classes is so important is that it shifts some of the regulatory work into the free market. Imagine if you could scale back the role of the SEC by about 75% and then have NYSE, AMEX, NASDAQ, and Pink Sheets take up the responsibility on themselves. Suddenly you have competitive forces instead of an unresponsive bureaucracy determining how to hold public companies accountable. If NYSE is too burdensome and creates useless regulations, the companies would shift to other exchanges. If one of them allows too much fraud or too little corporate transparency, investors will shift to other exchanges and stocks on the problematic exchange will languish (causing the good companies to move).

In a sense, this is happening already to some extent as companies are able to get listed on various exchanges around the world. There's a lot of talk about how SOX requirements make listing in the US a real pain, so new IPOs are happening outside the US more and more.

I expect to finish making another pass through the Pink Sheets (looking for new investments) before they implement this new multi-class structure. In a way, the new structure is bad for me because it does a lot of the work that I've been doing, making it easier for other investors to find the good stuff on the Pink Sheets. That's OK, I don't mind.

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