The Securities and Exchange Commission’s (SEC) rule change to protect individual investors from fraud is now widely seen as a disaster.

The An SEC Rule Was Meant to Protect Individual Investors. Chaos Ensued. is an article about the SEC rule change that was meant to protect individual investors but instead caused chaos.

Never take your cash flow for granted.

The ability to convert assets into cash quickly and at a price close to the previous transaction is a luxury that may vanish almost immediately at the worst conceivable moment.

Market liquidity, like water, may vanish in an instant. Many traders discovered this in January, when Robinhood and other brokerages imposed trading restrictions on popular equities such as GameStop Corp. GME 0.99 percent and AMC Entertainment Holdings Inc. AMC 0.37 percent. During the “flash crash” on May 6, 2010, liquidity also dried up quickly. Even ultrasafe money-market funds briefly stopped returning owners’ money on demand during the financial crisis of 2008-09.

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The Discerning Investor

Jason Zweig is a financial writer who specializes in investing strategies and how to think about money.

When a rule went into force late last month, it disrupted trading in hundreds of stocks and bonds, small investors learnt that lesson all over again.

Scott Wetzel, 64, is a Seattle-based retired business-information executive with a portfolio that includes bonds and income-producing securities. Several people trade on the major over-the-counter exchange, OTC Markets Group.

The OTC market is the hub of stock trading in the United States, and it is dominated by individual investors. There are almost 12,000 stocks traded there that are not listed on a major exchange like Nasdaq or the New York Stock Exchange. You may invest in Adidas AG, Air Canada, and Grayscale Bitcoin Trust, among other companies. Fly-by-night scams operated by unscrupulous stock promoters may potentially defraud you.

Historically, both legal and illegitimate businesses on the OTC have avoided disclosing their financial accounts.

Mr. Wetzel has reaped the benefits of several strong OTC businesses’ generous dividends and interest for years. The market price of his preferred shares issued by Ladenburg Thalmann Financial Services is a financial services firm based in New York. Services is a financial services firm based in New York. Services Inc., an investment bank and brokerage, then plummeted by 23% on Oct. 1.

The preferred stock had dropped so low this week that anybody who could purchase it at its current price of around $11 per share would get a $2 dividend yielding 18% annually.

Blues of Illiquidity

When a new Securities and Exchange Commission regulation limited trading in many stocks and bonds sold over-the-counter on OTC Markets, they dropped significantly. Here’s an example of what I’m talking about.


AmTrust Financial Services is a financial services company. is a financial services company. is a financial services company.

Change the 27th of September to the 5th of October.

The The The Dayton & Michigan Railroad is a railroad that runs through Dayton, Ohio. is a railroad that runs through Dayton, Ohio. is a railroad that runs through Dayton, Ohio.

Ladenburg Thalmann Financial

Preference for services

Precision Instrumentation from Northfield


Change the 27th of September to the 5th of October.

AmTrust Financial Services

Dayton & Michigan Railroad

Ladenburg Thalmann Financial Services is the company of choice.

Precision Instrumentation from Northfield


Change the 27th of September to the 5th of October.

AmTrust Financial Services

Dayton & Michigan Railroad

Ladenburg Thalmann Financial

Preference for services

Precision Instrumentation from Northfield

Mr. Wetzel attempted to purchase more at the substantially reduced price, certain that it was still an excellent investment. His broker informed him that he could only sell and not purchase.

That’s because, as of the end of September, a Securities and Exchange Commission regulation prohibits brokers from giving public price quotes on securities issued by businesses that don’t disclose current financial information. Ladenburg, which was purchased by Advisor Group Inc. in early 2020, no longer publishes financial statements for the general public.

Many brokers have ceased providing price quotations for Ladenburg and hundreds of other businesses that do not disclose public information as a result of the SEC regulation. Ladenburg’s securities are also prohibited for public quotation, according to OTC Markets.

The Intelligent Investor has more.

Mr. Wetzel’s grip was flash-frozen in an instant. He wishes he could purchase more of what he considers to be a good deal, but he is unable to do so. Individual holders of OTC securities that become unbuyable in the blink of an eye vented their frustrations on internet forums like Silicon Investor and in the final week of September.

“We’ve found ourselves in a position where we have genuine possibilities in front of us, but we can’t take use of them!” explains Mr. Wetzel.

Last year, then-SEC Chairman Jay Clayton said that the regulation was designed to safeguard individual investors “in these markets where retail participation is substantial and, regrettably, pump-and-dump and other scams are all too prevalent.”

The legislation had a potential to safeguard small investors against fraud, but it was only half-baked. The end consequence is chaos. Small investors are furious, and experts are stepping in to do what they can no longer do.

Because his brokers will still allow him to buy any OTC securities as a professional investor under the SEC regulation, David Waters, who owns Alluvial Capital Management LLC in Sewickley, Pa., has been purchasing. “It’s given experts an advantage at the cost of ordinary investors,” he adds. “It’s an unequal value transfer.”

The Securities and Exchange Commission (SEC) refused to comment.

Look into the preferred shares of Golar LNG Partners LP, an energy firm, for a closer look at the turmoil. They pay an annual dividend of 8.75 percent on their par value of $25 per share.


Have you ever been trapped with an investment that you didn’t want to keep for a longer period of time? Let us know about it in the comments section below.

Golar closed at $22.60 on Sept. 27, a “Pink Current” stock eligible for public quotations on OTC Markets. OTC Markets classified it as an Expert Market security the following morning, essentially making it inaccessible to ordinary purchasers. In intraday trade, the stock dropped 11.5 percent.

Golar was categorized as “Pink Current” by OTC Markets on Sept. 29, and the stock rose to $25.75 in four days.

On Oct. 5, however, OTC Markets reverted the stock to Expert status. In only two days, it dropped 11%.

“This was not a spur-of-the-moment decision,” says Jason Paltrowitz, executive vice president of OTC Markets. While he declined to comment on Golar specifically, he did note that stocks may shift between the Pink and Expert market levels based on trading volume and financial criteria outlined in the SEC regulation. He claims that less than 1% of OTC Market equities have done so.

After OTC Markets concluded that they satisfied the new rule’s criteria, around 2,700 securities were newly eligible for public price quotes. OTC Markets also ceased providing public quotations for approximately 2,200 equities around the same time.

“If [small investors] weren’t paying attention to that regulation change, they’d best be pleased with what they have because they may be stuck with it for a long time,” says Robert Forster, a former hedge-fund portfolio manager who sometimes trades over the counter. “You used to own a publicly listed asset; now you own private equity.” Congratulations! You own it in perpetuity.”

Warren Buffett often advises investors to purchase companies that they would be content to own for years if they couldn’t sell them. Every now and again, the market puts that adage into practice.

Jason Zweig can be reached at [email protected].

Dow Jones & Company, Inc. All Rights Reserved. Copyright 2021 Dow Jones & Company, Inc. 87990cbe856818d5eddac44c7b1cdeb8

The citadel investigation is a story that has been going on for a while. It’s about an SEC rule meant to protect individual investors, but instead it caused chaos.

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