Skip to main content

What is OTC?


Over-the-counter may refer to OTC market or process of trading securities that are not listed on some of major exchanges. On OTC market securities are traded via broker dealers who quote the stock unlike exchanges which function as auction market. Companies that can't meet listing requirements of major exchanges usually because they are too small and volatile or they don't want to be subjected to strict regulations and requirements of exchange trade on OTC market as so called unlisted securities.

Over-the-counter market is decentralized market, without physical location. Broker dealers who are regulated by Financial Regulatory Agency (FINRA) act as market makers by quoting the prices but it is possible that transaction can happened between two parties without others knowing information about price. This makes market less transparent alongside fewer regulatory requirements. Stocks trading on OTC are considered to bear additional risk, especially default risk but it is also the alternative to exchanges and opportunity to sell securities otherwise unavailable to investors. It is used for trading bonds, currencies, derivatives and equities. 

Penny Stock Reform Act of 1990 directed that Securities and Exchange Commission (SEC)create a uniform quotation system for OTC, after which Over-the-counter bulletin board was started. It is electronic quotation and trading service provided by FINRA. Even though it still provides investors with real time securities data it is suppressed by OTC Market Group which is currently the largest operator in this market. In 2007 it reorganized into three separate market places: the Best market (OTCQX), the Venture market (OTCQB) and Pink open market (OTC Pink). This means that not only small companies trade their securities on OTC but also a big companies, especially foreign firms that want to avoid double regulation, in the the country of origin and U.S. Companies have to fulfill listing requirements for OTCQX, one of them being that only companies that trade above $5 per share. All issuers have to meet financial and reporting criteria and undergo management review. Venture stage marketplace known as OTCQB list early stage and developing companies.They have to file reports on a regular basis but there is no financial requirements so it can include shell companies, penny stock and small foreign issuers. Pink sheet is an open market place with no filing or financial requirement but companies may file reports. Company trading on Pink sheets is classified under three categories depending on level of disclosure. Pink current company has submitted quarterly and audited annual report. Pink limited information has filed reports within last six months and the company categorized as Pink no information hasn't submitted any filing in the last six month. Firms from the last two categories often experience financial hardship or insolvency.

Comments

Popular posts from this blog

OTC stocks more difficult to trade and deposit

  Mina Mar Group helps micro-cap companies structure their growth. Micro-capitalized companies are those with less than $50,000,000 in equity, sometimes under $1,000,000. Restructuring involves raising money (both debt and stock), and planning how they will eventually harvest that wealth. If you’re a founder or investor, the secret to harvesting your equity is to possess assets with a developed market for their sale; up until recently, that market was the public market. Now, Over-The-Counter Securities (“OTC Securities”) don’t serve that purpose since, unless you’re a tech unicorn doing an IPO, there are essentially no ways to sell the shares you’ve invested in. OTC securities – how they were deposited five years ago. Brokerages all around the country have tightened compliance over the past five years to the point where no one may deposit share certificates into their brokerage accounts, even if they can prove that they paid for them. Consider the following demand from a secondary ...

All-cash, All-stock offer

An acquisition strategy known as an “all-cash, all-stock offer” requires the buyer to commit to purchasing all of the target company’s outstanding shares for a certain amount in cash. It is also characterized as buying all of a company’s outstanding shares from its shareholders in exchange for payment. All-cash, all-stock offers are typically taken into consideration as a strategy to complete an acquisition. This could be an excellent technique the acquiring corporation might use to make the transaction appear sweet and persuade shareholders who are on the fence to accept the sale by offering a premium above the cost at which the shares are now trading. So if it’s that case, if indeed the company was purchased at a premium, then shareholders of the target company could experience an increase in the value of their shares. Even when we talk about cash deals, a stock value for the target firm is discussed, and that value may be considerably higher than its current market price. Therefore,...

Company Disclosures

When we speak about disclosures and what they represent in financial terms, that actually refers to providing the public with all relevant information about a company on time.  So relevant information includes facts, figures, dates, procedures, innovation, etc, which means any information regarding a company that can probably impact an investor’s decision. As a result, it is necessary to comprehend that public company directors and officers are in charge of company disclosures and securing investors with complete and valid information. Access to material info enables investors to make information-based investment decisions, which is vital for efficient market pricing and on which state and federal securities are based.  Anytime new stocks are issued to the public, the SEC requisite disclosures of relevant financial and business info to possible investors, with exemptions provided for private placements and small issues. Integrated disclosure structure is the name give...