Most investors are familiar with the concept of bulletin board and over-the-counter (OTC) stocks, securities that are traded via a network of broker-dealers rather than on a national exchange. OTC stocks may inherently carry more risk for investors than those on national exchanges such as NYSE and NASDAQ, as often they are earlier stage companies and there are more relaxed financial requirements to trade on the OTC. 

The OTC also hosts the trading of a number of foreign issuers that are subject to regulations of their home country’s primary stock listing. In the case of Canadian companies, many of these issuers are held to the strict and transparent regulations of the TSX and TSX-Venture exchanges. The OTC facilitates the trading of these Canadian companies by US investors in US dollars. Additionally, investors have the reassurance that there is extra regulatory scrutiny put on these companies in their home jurisdiction. These foreign issuers are in a class to themselves on the OTC, and trade under symbols that end with the letter “F”.

In an attempt to bring order and transparency to the OTC investing landscape, OTCMarkets has developed a tiered system for trading. The top tier is called OTCQX and is home to some of the most established and respected companies in the world. Many foreign organizations, including Roche, BNP Paribas, adidas, and Heineken, are listed on the OTCQX. U.S.-based QX companies are required to meet the financial criteria for continued listing on the Nasdaq Capital Market, and international companies are required to meet specific qualifications of the NYSE’s worldwide standards.

Saturn Oil & Gas Inc. (TSXV: SOIL) (FSE: SMKA) (OTCQX: OILSF), a Canadian energy company based in Calgary, Alberta, recently announced its advancement from the OTC Pink market to the OTCQX. It’s a move that carries a number of benefits and should bode well for the company and its shareholders.

Better Access for US Investors

According to Organisation for Economic Co-operation and Development figures, in Q1 2022 there was about $535 billion globally in foreign direct investment (FDI). FDI is defined as a lasting investment in a foreign company. Of that $535 billion, US investors were responsible for about $114 billion, or about 21% of all global foreign investments for the quarter. The US always leads this category, so you can see why foreign companies are so focused on maintaining American stock listings. 

Not all listings are created equal, of course. The jump Saturn Oil & Gas is making from the Pink tier to the OTCQX is a very large one. But Saturn Oil & Gas is used to making big moves, having grown its production from 233 barrels of oil per day in Q1 2021, to announcing in September 2022 it has reached daily production of 12,000 barrels of oil equivalent. Saturn is a great example of a fast growing company that has been below the radar screen of most investors and only now has the spotlight of OTCQX trading, opening access to a massive potential investor base in the US, the world’s leading source of foreign investment.

In 2020, the SEC amended its Exchange Act Rule 15c2-11 to enhance disclosure and investor protection in the OTC market. OTCMarkets recently published a report analyzing effects of the new rule on the behavior of companies, brokers, and investors on its platform. 

OTC Value Creation

The report delivered a few illuminating results. As you can see above, OTCQB and QX companies benefited significantly more than Pink companies following the rule update, and the gap appears to be widening. The study also found stocks that moved up from the Pink tier experienced a narrowing of their spreads post-graduation, enabling a more robust trading market.

The OTCQX is also filled with energy and resource companies like Saturn Oil & Gas. It’s a place where investors in these industries look for opportunities, and affords Saturn Oil & Gas a much more visible and trusted position from which to operate than the company’s former Pink tier.  With over 5,000% increase in oil and gas production in the past 18 months, Saturn Oil & Gas has grown right into the qualifications for the OTC’s premium category of the OTCQX.

The Upshot

For investors familiar with Saturn Oil & Gas, and for the majority just hearing of it for the first time, the recent move up should provide more confidence in the company’s direction. It’s still the same high performance energy company, focused on cash-flow and low-decline drilling assets with a smart acquisition strategy. Now, however, Saturn has easier access to a much broader audience of investors through an increasingly trusted platform that is used by many highly respected international companies. Continue to keep an eye on Saturn Oil & Gas as the news and results roll in and the company spreads its story farther and wider than ever.

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