Overnight trading from July to provide US incentive for ASX-listers

OTC Markets is expected to launch its new OTC Overnight service on its OTCQX and OTCQB markets in early July, opening its doors to Asia-Pacific and international investors wanting to access global companies in US dollars between 8pm and 4am US Eastern Daylight Time. 

The move will see investors across the world able to invest the default world currency into Australian companies and organisations domiciled outside the US between 10am and 6pm in Australian east-coast market time, and during typical 8am-4pm listed company business hours in Western Australia. 

OTC Markets Group Corporate Services Executive Vice-President Jason Paltrowitz spoke to MarketOpen about the benefits for Australian-listed companies of a secondary listing on an OTC market, noting a primary reason for a cross-listing tended to be to improve liquidity. 

Secondary liquidity from being on another market is a benefit of an OTC listing, but overnight trading may further enhance potential gains for companies from liquidity. 

Overnight trading will allow people to trade in US dollars on the OTC while North American markets sleep, allowing keen investors to gain potential upside from positive news released to the Australian market during standard business hours Down Under. 

Traders will also be able to act on the comparative opportunities inherent in a fluctuating Australian share price, a differing US market value, the ups and downs of the US and Australian dollars, and the movement of other currencies compared to the US and Australian dollars. 

The opportunities could see trading in a company’s securities pick up. 

Investors in companies such as Australian biotechnology giant CSL (ASX:CSL, OTCQX:CSLLY) could potentially see an undervalue on the OTC market compared the ASX and snap up corresponding OTC assets using a North American trading facility at their disposal. 

“OTC Overnight should be interesting because you’ll have the ability for an Aussie trader to trade CSL dollar and US dollar and Aussie dollar in Aussie time zones at the same time,” Paltrowitz flags. 

Alternatively, a person, organisation or subsidiary that only wants to invest with US dollars can take advantage of potential upside during Australian business hours. 

“We speculate that that would be a liquidity boost as you’ll find traders that’ll just be looking to our currency,” he notes. 

International investors wanting to trade US dollar and OTC stocks during their business hours are an attractive business proposition for the market. 

“We’re doing this primarily because of the demand for global equities outside of the US,” Paltrowitz says. 

“While (there’s) US investors wanting access to global securities, there’s also significant growth in global investors, primarily out of Asia, but even in Australia.” 

Why go for a US listing? 

OTC’s markets OTCQX and OTCQB are known to be a cost-effective and efficient way for Australian companies to access the US market. 

The markets can attract investment in Australian companies from the full range of retail investors in the US, smaller institutions, family offices and the high-net-worth North American individuals you can see negotiating private placements at booths at the major US and Canadian conferences these days. 

Paltrowitz says these HNW individuals like investing in gold, lithium, nickel and cobalt, and the “hopes and dreams” of pre-revenue investments such as assets not yet generating returns from production. 

“Because we’re not a primary market and because companies aren’t offering securities and putting securities into us, it means that all of the liquidity that gets generated from the US investors, a vast majority of that tends to find its way back into Australia,” he says, noting locked up securities can eventually be traded on-market. 

Why choose OTC markets? 

ASX companies can keep their regulatory compliance costs at similar levels by choosing an OTC listing in the US over a NASDAQ or New York Stock Exchange listing. 

On OTC Markets, an Australian-listed company can their existing ASX reporting under the market’s disclosure rules to meet a commitment to share information with the US market. 

A number of Australian Securities Exchange-listed Australian companies have already listed on OTC markets, hoping to improve their liquidity while accessing more funds or attracting a potential buyer. 

Australian mining and resource companies, and biotechnology and pharmaceutical drug development industry players are among a who’s-who of Australian cross-listers on the OTCQX and OTCQB markets. 

Smaller companies listed on the ASX include Antipodean biotechs Algorae Pharmaceuticals (ASX:1AI, OTCQX:LVCLY) – previously Living Cell Technologies (ASX:LCT), Argent Biopharma (ASX:RGT, OTCQB:RGTLF, LON:RGT), previously MGC Pharmaceuticals, (ASX:MXC, OTCQB:MGCLF, LON:MXC) and Zelira Therapeutics (ASX:ZLD, OTCQB:ZLDAF) can be found on the QB market. 

“QB is our venture market,” Paltrowitz explains. 

“That is where you’ll find about 60 Aussie exploration companies, the smaller ones, because it is a venture market (and) disclosure-based market, with significantly less financial standards. 

“To trade on that market, you just need to be trading above a penny.” 

Penny stocks on the QB can be pre-revenue but need to have a 10% free flow and 50 round-lot shareholders. 

“It’s really about do you have corporate governance in place and are you making the adequate disclosure into the system,” OTC’s corporate VP says. 

Because OTC is a secondary market, companies can use their Australian Securities Exchange disclosure reporting to enter the US market without needing to also be SEC reporting or Sarbanes Oxley compliant, keeping potential insurance cost escalations down. 

Bigger resource-industry players, such as Andrew Forrest’s Fortescue greentech-metals group (ASX:FMG, OTCQX:FSUGY) are on the QX market, joined by Deep Yellow (ASX:DYL, OTCQX:DYLLF) and Champion Iron (ASX:CIA, OTCQX:CIAFF). 

“Those are the bigger companies,” Paltrowitz says. 

“QX does have financial standards as well as corporate governance and others. You can’t be a penny stock on that market. 

“The market-cap requirements are significantly higher.” 

Other QX plays are the bigger biotechs, Australian Government spinout CSL, Cogstate (ASX:CGS, OTCQX:OTCM) and Starpharma (ASX:SPL, OTCQX:SPHRY). 

Ambitious QB companies are also able to upgrade to QX like Lotus Resources (ASX:LOT; OTCQX:LTSRF) did last month. Alternatively, companies can go straight to a QX listing. 

Buy in, buy out 

To access either the QB or QX markets, a company must pay an application fee and an annual charge. 

“We try to make this incredibly cost-effective and efficient,” Paltrowitz says. 

“Both our markets have a one-time, US$5,000 application fee. 

“The QB market is US$15,600 per year, and the QX is US$25,600.” 

ASX filings are sufficient for the market, keeping costs down, although local US investor and media relations representation is of course a good idea. 

The listing carries a flexibility not seen on markets, which is good in a downturn. 

“If you get up one day and say, ‘We don’t want to do this anymore, it didn’t work. We don’t care about the US,’ you just don’t pay us your listing fee and you’re free,” Paltrowitz says. 

The option could be a good one for a company in trouble or one whose buyer wants to swiftly take it off-market. 

A growth option 

The demand for an OTC listing is growing in Australia after a previous contraction typical to the booms and bust of Australia’s resource-heavy market. 

“We continue, we probably have about 90 companies now out of Australia,” OTC’s VP says.

“It used to be over a hundred, but a lot of those junior miners were taken out or fell out of compliance or whatever. There were some acquisitions. But we see that continuing to grow (especially) while the resource market drives it.” 

OTC Overnight is expected to launch in the coming weeks. 

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