Restoring the Secondary Trading Market Act

Proponents argue the bill reduces regulatory redundancy, allows capital formation in OTC markets, and prevents states from imposing conflicting trading rules that fragment the secondary market. They contend companies meeting SEC disclosure standards do not need additional state-level trading restrictions. Critics argue the bill eliminates state investor protections developed specifically to prevent fraud in thinly-traded securities, creates a regulatory gap for retail investors who lack sophistication to evaluate OTC risks, and removes state enforcement tools for market manipulation in penny stocks and micro-caps. Non-partisan evidence from SEC enforcement and state securities enforcement data shows OTC secondary markets have significantly higher fraud rates and manipulation incidents than exchange-listed securities; states traditionally use trading rules (position limits, quotation standards, suitability requirements) to mitigate these harms. The bill's assumption that SEC disclosure standards provide sufficient protection for trading activity is contested by securities law scholars and state regulators who distinguish between issuer disclosure (what companies must tell investors about themselves) and trading conduct regulation (how trades must be executed).