Discovering Unlisted Trading Privileges (UTP)
Unlisted Trading Privileges (UTP) pertain to the trading of securities on an exchange without the requirement to meet specific minimum standards typically mandated for exchange listings. The governing framework for UTP is stipulated under the Unlisted Trading Privileges Act of 1994.
Key Takeaways
- Definition: UTP involve the processes and regulations for trading securities that do not qualify for listing on an exchange.
- Legislation: In the U.S., UTP is regulated by the Unlisted Trading Privileges Act of 1994, an amendment to the Securities Exchange Act of 1934.
- Types of Securities: Unlisted shares primarily include over-the-counter (OTC) shares such as penny stocks or those of privately-held companies.
- Mechanism: With UTP, a company’s stock can be traded on an exchange even if the company hasn’t met the specific requirements of that particular exchange.
Understanding Unlisted Trading Privileges (UTP)
UTP were introduced to enhance the liquidity of securities across markets, including those outside registered exchanges. UTP authorize certain companies to trade their securities on an exchange without needing to meet the complete requirements set by every national securities exchange they wish to be listed on. Unlisted trading usually occurs with over-the-counter (OTC) shares, including stocks listed on pink sheets or penny stocks.
Historically, UTP were granted by the Securities and Exchange Commission (SEC) through a specific application process. Nevertheless, the process evolved with the enactment of the Unlisted Trading Privileges Act in 1994. This Act redefined procedures, stipulating that the company offering a security and the exchange where it is traded must collaborate to secure UTP authorization from the SEC.
The Unlisted Trading Privileges Act of 1994
The Unlisted Trading Privileges Act was an amendment to the 1934 Securities Exchange Act, a key legislation governing secondary market trading of securities in the United States.
Provisions of the Unlisted Trading Privileges Act are found under U.S. Code Title 15, Section 78(l)(f). This legislation allows any securities exchange to extend UTP to any company complying with the specified provisions within the Act. A company must fully adhere to the pre-existing clauses of the 1934 Securities Act discussing national securities exchange listing standards.
The Act emphasizes maintaining fair and efficient market trading, alongside safeguarding all market participants. Here are some of its significant provisions:
- Exchange Offer: An exchange can offer UTP to a security listed on another national securities exchange if it complies with that exchange’s standards.
- SEC Approval: The SEC must approve the extension of UTP and can impose additional requirements if deemed necessary.
- Authority to Revoke: The SEC retains the right to revoke or reinstate UTP on an exchange as needed.
By understanding the nuances of UTP, investors and companies can better navigate the complexities of the trading landscape, ensuring fair and liquid market practices.
Related Terms: OTC shares, pink sheets, penny stocks, Securities and Exchange Commission, secondary market, Securities Exchange Act of 1934.
References
- U.S. Congress. “H.R. 4535—Unlisted Trading Privileges Act of 1994”.
