Unlisted Trading Privileges (UTP)

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Unlisted Trading Privileges (UTP)

Unlisted Trading Privileges (UTP) are the rules and procedures that permit a security to be traded on an exchange even though the issuer has not met that exchange’s full listing requirements. UTP increases market access and liquidity for securities that otherwise trade off-exchange, such as over-the-counter (OTC) or “pink sheet” stocks.

How UTP works

  • An exchange may permit trading in a security that is not listed on that exchange by granting UTP for that security.
  • Historically the SEC granted UTP through an application process. The Unlisted Trading Privileges Act of 1994 revised that process and clarified interactions between issuers, exchanges, and the SEC.
  • Under UTP, the exchange and the issuer work jointly to obtain SEC authorization. The SEC can approve, condition, revoke, or reinstate UTP for a security.

Unlisted Trading Privileges Act of 1994 (summary)

  • The Act amended the Securities Exchange Act of 1934 and is reflected in U.S. Code Title 15, Section 78l(f).
  • It allows any securities exchange to extend UTP to a security that meets the Act’s provisions.
  • Key principles include fostering fair and efficient markets and protecting investors and the public interest.
  • The SEC retains oversight and may impose additional requirements when approving UTP.

Common examples

  • Over-the-counter (OTC) securities and penny stocks are common subjects of unlisted trading when they appear on national quotation systems but do not satisfy national exchange listing standards.
  • A security listed on one national exchange can be granted UTP on another exchange, permitting trading across multiple venues.

Implications for investors and markets

  • Benefits:
  • Greater liquidity and improved price discovery by allowing trading across more venues.
  • Easier access to trading for investors when a security appears on multiple exchanges.
  • Risks and limitations:
  • UTP does not imply that an issuer meets the listing standards of the exchange offering trading privileges.
  • OTC and penny stocks may have limited disclosure, higher volatility, and greater risk despite UTP.
  • Investors should distinguish between being tradable on an exchange via UTP and being formally listed on that exchange.

Key takeaways

  • UTP enables securities to trade on an exchange without full compliance with that exchange’s listing rules.
  • The Unlisted Trading Privileges Act of 1994 formalized procedures and preserved SEC oversight.
  • UTP can improve liquidity and market access but does not substitute for the transparency and standards associated with formal listing.