What the OTC Markets stock promotion flag means

The stock promotion flag is an informational marker, shaped like a megaphone, that OTC Markets places on a security's quote page and in its market data feeds when it identifies current promotional activity in that stock. OTC Markets introduced it in March 2018 (its launch announcement), describing it as a way to alert investors to the presence of promotion and to help broker-dealers with compliance.

According to its policy on stock promotion, OTC Markets monitors for promotional campaigns, with particular attention to anonymous paid promotion, connections to known bad actors, and the promotion's likely effect on trading. Its compliance team researches a campaign before publishing the flag.

OTC Markets says the promotion flag stays on a security for 15 days after it becomes aware of the last distribution of promotional material. A campaign that runs in waves can therefore keep a stock flagged for months, with the 15-day clock restarting each time new material goes out.

That timing is useful context. A flag on a stock that hasn't been mentioned anywhere you read may mean the promotion is happening in channels you don't see, such as email lists, text alerts or paid social posts.

Caveat Emptor (buyer beware) is a stronger designation. OTC Markets places a skull and crossbones icon next to the symbol to signal a public interest concern about the security, the company or the people behind it (Caveat Emptor policy). Promotion is one of the reasons it can be applied: OTC Markets may designate a promoted security Caveat Emptor when it decides the promotion presents a public interest concern, or when the company hasn't made adequate current information available.

• It typically isn't removed within the first 30 days, and removal requires the company to meet the standards for the Pink Limited market, provide current information under SEC Rule 15c2-11, and satisfy OTC Markets that the concern has passed.
• Quotes for Caveat Emptor securities that aren't in Pink Limited are not displayed on otcmarkets.com.
• Many brokers restrict buying, or require extra steps, for Caveat Emptor securities.

When OTC Markets identifies a promotion, it may ask the company to issue a press release about it. These statements follow a familiar structure, and they are some of the most informative documents a promoted company ever publishes. The policy describes what the release should cover:

1. 1
   How and when the company learned of the promotion, and whether it paid for it.
2. 2
   Whether the promotional material is accurate, with corrections to any claims that aren't.
3. 3
   Whether officers, directors, control persons or service providers were involved in the promotion or traded the shares around it.
4. 4
   A list of the investor relations, marketing and promotion firms the company has engaged recently, often with what they were paid.

Search a company's recent news for phrases like "responds to OTC Markets request" or "statement regarding promotional activity" to find one. The list of service providers is particularly useful: it often names firms and budgets that never appear in a newsletter disclaimer. Our guide to investor awareness campaigns explains how to read those engagements.

• It only covers OTC securities. Stocks listed on Nasdaq or the NYSE get no equivalent icon, yet OTC Markets' own data, cited when it launched the flag, put 70% of the dollar volume affected by promotion in exchange-listed securities. A listed stock with no flag can be just as heavily promoted.
• It doesn't say who paid or how much. The flag records that promotion is happening. The payer, the budget and the dates live in the promoters' own disclosures.
• It isn't a verdict. A company can be promoted without its knowledge, and a flagged stock isn't necessarily a fraud. It's a reason to look harder.

That's why the flag works best alongside the disclosures themselves. Every ticker in our promoted tickers index, listed or OTC, shows the disclosed promotions behind it: who paid, how much, which newsletters carried it and when.

OTC Markets accepts reports of questionable promotional activity by email at [email protected], with the ticker and examples of the material (OTC Markets FAQ). It notes that it is not a regulator, so complaints about possible fraud should also go to the SEC or FINRA.