A familiar concern among policymakers is the shrinking number of U.S. publicly traded companies. For instance, SEC Commissioner Hester Peirce recently highlighted that the number of listed firms has fallen from approximately 8,000 in 1996 to around 4,200 in mid-2022. Increasing the supply of public companies has been a bipartisan policy objective.

Yet this debate often overlooks thousands of firms traded outside national exchanges on the over-the-counter (OTC) market. While not “listed” in the traditional sense, many of these firms’ securities are publicly traded via broker-dealers and interdealer quotation systems (IDQS). OTC Markets Group, for example, enables retail investors to buy and sell the stock of nearly 5,000 U.S. issuers. By a functional definition of “publicly traded,” the U.S. market may be considerably larger than the standard narrative suggests.

A critical distinction, however, lies in disclosure. Exchange-traded firms must comply with Section 13 of the Exchange Act, which ties eligibility for exchange trading to mandatory, periodic disclosures. In contrast, many OTC issuers historically provided no ongoing public financial information while continuing to benefit from broker-dealer quotations. This separation of public trading and ongoing disclosure is unusual in U.S. securities markets, where the two are typically bundled.

In a new paper titled When Disclosure Pays: Evidence from the Over-The-Counter Markets, we study a recent regulatory reform—amendments to SEC Rule 15c2-11— that, for the first time, directly tied periodic disclosure and public trading in the OTC market. This reform ended the longstanding anomaly in which firms’ could be publicly quoted without making periodic public disclosures. In so doing, we provide new estimates of the costs and benefits, in terms of liquidity and valuation, of a mandatory disclosure regime that bundles together disclosure and public trading.

Rule 15c2-11 and the OTC Market

Rule 15c2-11 governs when broker-dealers may publish public quotations for OTC securities. Prior to 2020, brokers could publish quotes without ensuring the issuer had provided current, publicly available financial and non-financial information. This changed on September 16, 2020, when the SEC adopted amendments requiring current disclosure as a condition for public quotation. Specifically, to retain their public quotes, non-disclosing OTC firms were required to commence providing “current” public information, which was defined as the annual financial and non-financial information set forth in amended Rule 15c2-11. The compliance deadline for the rule was September 28, 2021. Firms that disclosed by this deadline thus retained their public quotes, while those that did not were relegated to an “Expert Market” where quotes are limited to unsolicited orders and restricted from public viewing.

For OTC issuers, amended Rule 15c2-11 created a binary choice: begin disclosing by September 28, 2021 to retain a public quote or remain non-disclosing and lose your public quote.

We study over 3,000 OTC securities that lacked current disclosures at the time the final rule was announced. Roughly 800 firms initiated disclosure before the compliance deadline, while the rest lost their public quotes. Because disclosure decisions occurred intermittently during the one-year transition, we conduct an event study analyzing the immediate effects of these choices on liquidity and valuation.

Main Findings

Our analysis yields three key findings:

First, liquidity collapsed for non-disclosing firms. Securities that lost eligibility for public quotations saw immediate declines in liquidity. The average number of market makers fell from nearly six to fewer than three, and the percentage of securities with two-sided quotes dropped from roughly 90 percent to under 15 percent. Round-trip trading costs also increased sharply.

Second, firms committing to disclosure saw improved liquidity. Firms initiating disclosure experienced measurable increases in market maker activity and narrower quoted spreads. These changes occurred immediately following the first disclosure, suggesting that market makers quickly incorporated the new information.

Third, firm value rose for firms that committed to disclosure. Stock prices rose substantially when firms first signaled compliance with the new disclosure rules. We observe three-day and six-day market-adjusted returns of 19.5 percent and 27.0 percent, respectively. Importantly, these effects were not limited to firms with strong fundamentals. Even issuers reporting zero revenues or widening losses experienced positive abnormal returns. This finding suggests that, relative to non-disclosing firms relegated to the Expert Market, firms were rewarded by the market for committing to the new mandatory disclosure regime, independent of the financial content disclosed.

Contributions to the Literature

Our paper makes three primary contributions.

First, we provide the first comprehensive analysis of the 2021 amendments to Rule 15c2-11, showing how tethering public trading to public mandatory disclosure reshaped liquidity and valuations in the OTC market. Our findings highlight the stark costs borne by firms relegated to the Expert Market, and the rewards accruing to those that complied with the new mandatory disclosure regime to preserve their public quotes.

Second, we contribute to the literature on mandatory disclosure and information asymmetry. Prior work has shown that transparency enhances liquidity and reduces adverse selection, but disclosure also imposes both direct compliance costs and indirect strategic costs that can deter firms from reporting. The Rule 15c2-11 amendments make this tradeoff especially clear: in today’s U.S. regime, both OTC and exchange-listed firms effectively face a choice. Only those issuers that seek public trading must subject themselves to ongoing, periodic reporting obligations. For OTC firms that opt in, our findings show substantial liquidity and valuation benefits for stockholders. For those that opt out and remain in the Expert Market, the forgone benefits highlight just how costly disclosure must appear from the firm’s perspective.

Third, we add to the growing body of work on OTC markets and their governance challenges. The sharp decline in liquidity for firms relegated to the Expert Market suggests that the new rule effectively split the OTC market into two distinct tiers: one consisting of transparent, publicly accessible securities, and another of opaque, thinly traded assets. This segmentation may strengthen investor protection by curbing fraud and improving market quality, but it also exposes investors to new risks, since a firm’s insiders now determine whether it will operate in the transparent tier or remain in opacity. Ideally, this decision reflects the interests of the firm as a whole, but our findings underscore the importance of ensuring that disclosure decisions appropriately balance the costs and benefits for all investors, not just insiders.

Conclusion

The 2021 amendments to Rule 15c2-11 tied ongoing disclosure and public quotation together for OTC firms, replicating the long-standing exchange rule that firms cannot trade publicly without a commitment to disclosure. Our results show that firms choosing this bundle of disclosure plus a public quote enjoyed substantial liquidity and valuation gains, while those that remained non-disclosing and lost their quotes experienced sharp declines in trading activity.

For scholars, regulators, and market participants, the lesson is clear: disclosure imposes costs, but firms are rewarded when they provide investors with both transparency and liquidity. The governance challenge lies in ensuring that insiders weigh these trade-offs in a manner that advances the interests of all stockholders.