NASD Security Categorisation Methodology

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Culled—Proshare

December 15, 2017/NASD Plc 

The NASD OTC Securities Exchange brings a new layer of investment opportunity to investors in unlisted public securities who hitherto now, were unable to liquidate their shares.  It also brings a new level of confidence to issuers who need quick access to the Capital Market to raise required capital.  

Some factors play a critical role in investment decision making for Investors and Issuers. Factors such as access to information on historical and current financial performance, compliance to global best corporate governance standards and managerial capacity to create long-term value. This is due to the generally accepted principle that companies with a good track of corporate governance and financial performance generate better returns on investment.

 As more information is made available; Investors can make better investment decisions, price discovery is more efficient and the company finds it easier to attract capital.

NASD OTC Securities Exchange recently commenced a classification of admitted securities into “Blue Securities” and “Pink Securities” to provide the capital market community with information on securities that satisfy general market expectations. We believe that this service will reveal more of the intrinsic value in such companies, improve levels of investor confidence and drive more efficiency into price discovery processes.

Our Approach
NASD applies a fair, unbiased, rigorous approach; taking care to remain objective and factual using the most recent publicly available and reliable information.  We communicate with each company to give them the opportunity to comment and provide additional data if necessary. We also provide full transparency on our methodology, to ensure what we are doing, and how we are doing it is accessible and understandable to anyone. 

Company Evaluation
In initiating our categorization, NASD has referenced information that is no later than 12 calendar months from the date of initiation (in this instance November 2016).  This is taking from the principle that interim financial information older than 9 months is considered stale for public companies.  

Information reviewed include Publicly Available Company Reports and Audited company filings, Date of Annual General meeting, Interim reports. Information is systematically assessed under four broad groupings:

  1. Regulatory Compliance,
  2. Corporate Governance,
  3. Disclosure and Financial performance,
  4. Corporate Social Responsibility and Sustainability reports.

This approach seeks to highlight issuer’s levels of engagement with the investing public and the level of compliance of such a company with the ISA. Invariably, companies with higher levels of financial reporting and corporate governance achieve a higher score than those that have weaker compliance with regulatory and capital market requirements. 

Categories
To produce the rankings, NASD estimates a series of individual numerical scores at the each criteria level. These criteria scores are calculated and normalized across Metrics. A security’s overall score is then determined by calculating the weighted sum of its scores across all Criteria. 

Blue Securities: – These are shares of companies with a history of sound financial performance. These companies display a high level of corporate governance by timely disclosure of their financial statements, regular communication with shareholders and meet the minimum requirements of the Securities and Exchange Commission (SEC). 

Pink Securities: – These are shares of companies that do not comply with the minimum disclosure and reporting requirements of SEC and NASD. Companies in this category may not have current information available to the public. 

Red Securities: – These are shares of companies that are clearly in default and do not meet up to expectations of the capital market and Regulators. Non-compliant companies will be ranked by end of Q1 2018. 

NASD Security Categorisation Rankings are generally updated weekly, with the updated ratings published on Monday mornings. From time to time, NASD may update the Security Categorisation Ranking in response to changing levels of compliance. 

Disclaimer

  • This information is provided by NASD OTC Securities Exchange solely for general, informational purposes only. Hence, nothing contained may be construed as a solicitation, offer, recommendation or representation of suitability or endorsement of any security admitted on the OTC Market.
  • The ranking merely reviews the level of public information that is available on each security. Such information may not have been independently verified by NASD.
  • Our systematic ranking method may not capture all the dynamics that affect individual security returns, categorisation may not capture more subjective, qualitative influences on risk and return.
  • We recommend that you contact any NASD approved Participating Institution with respect to any matters involved with making an investment.  

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