Regulators in Quebec say they are stepping up the fight against market manipulation in the United States over-the-counter (OTC) markets, by cease trading issuers with deficient disclosure, and working with regulators in other jurisdictions to thwart abusive trading.
The Autorité des marchés financiers (AMF) said Wednesday it is cracking down on issuers that could engage in abusive activity on the U.S. OTC markets in an effort to prevent market manipulation, and to protect investors and the reputation of Quebec-based market participants. The AMF says that it has cease traded 23 issuers in recent months over concerns about their compliance with continuous disclosure rules, that were adopted in 2012, requiring OTC issuers with a significant connection to Québec to file certain disclosures with the AMF.
The regulator reports that it has contacted issuers that are active on U.S. OTC markets, and have a significant connection to Quebec, to remind them of their disclosure obligations. It has only found 11 issuers that are compliant with the rule, and it has cease traded 23 others.
“The orders issued by the AMF are part of a more global set of measures taken by various regulators to mitigate market manipulation risk,” it says, noting that earlier this year the U.S. Securities and Exchange Commission (SEC) suspended 255 shell companies that were trading in OTC markets.
The AMF is also hosting a seminar this week, involving over 100 participants from 10 countries and eight Canadian provinces, to address market manipulation and insider trading issues.
“The U.S. OTC markets are often a haven for shell companies that can be used in market manipulation strategies,” the AMF warns. “These thinly traded small-cap companies often do not file continuous disclosure documents that enable investors to assess the company’s actual financial condition.” It warns investors to be cautious when investing in these markets, given the “highly variable” quantity and quality of continuous disclosure by companies in these markets.