OTC Market Offers Relief From Sarbanes-Oxley - Barron's

Includes: BAYRY, VOLVY
by: Judy Weil

Why are large foreign companies like Volvo and Bayer listed on the OTC market? Money, says Barron’s.

Sarbanes-Oxley regulations are costing companies millions to comply with. Foreign companies don’t want to pay high accounting fees for a U.S. listing, especially when London's and Luxembourg's depositary receipt markets are increasingly appealing. Through May 2008, more than 70 foreign companies have delisted, and more could follow. So the SEC took the historical step of allowing foreign entities to move to the OTC if less than 5% of their global trading volume came from the U.S.

The SEC had previously stymied listing changes, fearing foreigners would IPO and then bolt, leaving investors with hard-to-trade stocks. Something is working: Delistings are down at the NYSE and new foreign listings are up. U.S. investors can still trade their foreign favorites, who, in turn, save millions in fees.

The OTC market may be less transparent and harder to trade and price, and mutual funds' rules will force sales of delisted company shares, causing indexes to shift down by size and not performance. But soon those who think of OTC as a market for microcaps and troubled companies will learn why Nestle and other foreign conglomerates are traded there.