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With the exception of some foreign issuers, the companies quoted on OTC Link tend to be closely held, very small and/or thinly traded. Most issuers do not meet the minimum listing requirements for trading on a national securities exchange. Many of these companies do not file periodic reports or audited financial statements with the SEC, making it difficult for the public to find current, reliable information about those companies.
OTC Markets organizes and disseminates price and company information making the marketplace more transparent, efficient and investor friendly. We have created the OTC market tiers to motivate OTC companies to provide more information to investors and we offer companies products and services to help them get their information out on our network for all investors to find.
Investors everyday transfer their accounts from one brokerage firm to another. Account transfers are generally completed without a problem, often within two to three weeks. If you are planning on transferring your account, read our publication, Transferring Your Brokerage Account: Tips on Avoiding Delays.
To ensure the integrity of quotations, FINRA requires every member to trade at its publicly quoted prices. Integrity of quotes is essential to the normal operation of the OTC market as the failure to honor quotations, also known as “backing away,” can be disruptive to a fair and orderly market.
Real-time Level 2 quotes are available for sponsored securities, and all OTCQX securities on OTCMarkets.com. Real-time Level 2 quotes and trades for all other OTC securities are available on OTC Dealer.
OTCQX US – OTCQX offers domestic companies a quality-controlled trading platform on the OTC Market. OTCQX provides the compliance driven process and shareholder services of an exchange at significant cost savings.
Quotes for all OTC securities are available on OTCMarkets.com by entering a symbol in the quote search area at the top left of any page. All OTCQX securities display real-time level 2 quotes while all OTCQB and OTC Pink securities display real-time inside (best bid and ask) quotations. Quotes are updated from 6:00 AM to 4:00 PM on all trading days.
FINRA has established OATSSM as an integrated audit trail of order, quote, and trade information for NASDAQ and OTC equity securities. FINRA uses this audit trail system to recreate events in the life cycle of orders and monitor more completely the trading practices of its members.
The Financial Industry Regulatory Authority (FINRA) regulates broker-dealers that operate in the over-the-counter (OTC) market. Many equity securities, corporate bonds, government securities, and certain derivative products are traded in the OTC market.
Broker-dealers may charge an additional ‘access fee’ to broker-dealers who want to trade at their quoted price. The fee maximums are based on the tick size (> .01) or price (< .01). OTC Markets QAP (Quote Access Payment) functionality allows broker-dealer to dynamically set their fees or rebates.
The OTC market and broker-dealers’ activities in the market are regulated by The Financial Industry Regulatory Authority (FINRA), the U.S. Securities and Exchange Commission (SEC) and various state securities regulators. As well, companies with SEC-registered securities are regulated by the SEC. OTC Markets Group is neither a stock exchange nor a self-regulatory organization (SRO) and is not regulated by either FINRA or the SEC.
All corporate actions, including: symbol changes, venue changes (new to the OTC), OTC Tier changes, Caveat Emptor status changes, Splits, Dividends, and Deletes are available within the Corporate Actions section.
Spreads are often the result of the amount of information available on a security. This information may come in the form of past trading data, news or company financials. If very little information is available on a security, spreads may be very large because the market maker does not want to be caught off guard by a better-informed investor.
Inter-dealer Quotation/Trading Systems allow broker-dealers to post and disseminate their ‘quotes’ (prices) to the market place and, in the case of OTC Link, negotiate trades at agreed-upon prices.
The advantages of OTC derivatives over exchange-traded ones are mainly the lower fees and taxes, and greater freedom of negotiation and customization of a transaction, as it involves only a seller and a buyer and no standardization authority.
Investors should always carefully review the financial information of issuers before making investments. Many OTC equities are issued by small companies with limited histories or in economic distress.
The NYMEX has created a clearing mechanism for a slate of commonly traded OTC energy derivatives which allows counterparties of many bilateral OTC transactions to mutually agree to transfer the trade to ClearPort, the exchange's clearing house, thus eliminating credit and performance risk of the initial OTC transaction counterparts.
The NYMEX has created a clearing mechanism for a slate of commonly traded OTC energy derivatives which allows counterparties of many bilateral OTC transactions to mutually agree to transfer the trade to ClearPort, the exchange's clearing house, thus eliminating credit and performance risk of the initial OTC transaction counterparts.
When you open a brokerage account, you must sign a new account agreement. You should carefully review all the information in this agreement because it determines your legal rights regarding your account.
Due to the broad range of OTC companies, OTC Markets Group organizes these securities into tiered marketplaces to inform investors of opportunities and risks.
The OTC Bulletin Board (which is a facility of FINRA), and OTC Link LLC (which is owned by OTC Markets Group, Inc., formerly known as Pink OTC Markets Inc.), for example, operate within the OTC market, particularly with respect to OTC equity securities.
A good starting point for research is the OTC market tier structure – which quickly indicates the level and timeliness of information available for OTC companies.
Unlike other loans, like for a car or a home, that allow you to pay back a fixed amount every month, when you buy stocks on margin you can be faced with paying back the entire margin loan all at once if the price of the stock drops suddenly and dramatically.
The security is a Grey Market security. Grey Market securities do not have any quotes in either OTC Link or the OTCBB. Grey Market securities are indicated in OTCMarkets.com by a grey triangle next to the symbol or on the top right of the quote page.
Complaints regarding companies should be directed to the SEC, while complaints regarding broker-dealers or other investment professionals should be directed to FINRA. More information about specific OTC regulations is covered in Part 3 – Regulation.
FINRA halts may be lifted when FINRA determines that the basis for the halt no longer exists or 10 days have past. After the halt ends, market participants may re-enter the stock if the piggyback qualification has not lapsed. If the piggyback qualification has lapsed then market participants may re-enter the stock if they comply with Rule 15c2-11. This rule requires the filing, with FINRA, of a new Form 211 which must include the issuer’s current financial information.
Broker-dealers usually will first determine if they can or choose to execute the trade internally. Internal executions occur if they can ‘match’ (same prices for a buy and sell order) Limit Orders or if they choose to trade for their own account. If they are trading for their own account, they must give investors their limit order price or the NBBO (National Best Bid or Offer) as defined by an Inter-dealer Quotation Systems (OTC Link/FINRA BB) at that point in time.
Compliance with the Information Requirement of SEA Rule 15c2-11 – To initiate quotations on an inter-dealer quotation system for an OTC security not currently being quoted or to resume quotations after a four day absence or SEC suspension, a market maker must submit a Form 211 to FINRA. Once FINRA approves the 211, the market maker may submit a quotation to the applicable inter-dealer quotation system(s) they selected on the Form 211.
The OTCQX tier includes both multinational companies seeking access to U.S. investors and domestic growth companies.[12] To be traded on this tier, companies undergo a qualitative review by OTC Markets Group.[13] Companies are not required to be registered with or reporting to the SEC, but must post financial information with OTC Markets Group.
These institutions manage portfolios of derivatives involving tens of thousand of positions and aggregate global turnover over $1trillion. The OTC market is an informal network of bilateral counterparty relationships and dynamic, time-varying credit exposures whose size and distribution are tied to important asset markets. International financial institutions have increasingly nurtured the ability to profit from OTC derivatives activities and financial markets participants benefit from them. As a result, OTC derivatives activities play a central and predominantly a beneficial role in modern finance.
FINRA members shall not impose, nor permit to be imposed, non-subscriber access or post-transaction fees against its published quotation in any OTC Equity Security that exceed or accumulate to more than: (a) $0.003 per share, if the published quotation is priced equal to or greater than $1.00; or (b) the lesser of 0.3% of the published quotation price on a per share basis or 30% of the minimum pricing increment under Rule 6434 relevant to the display of the quotation on a per share basis if the published quotation is less than $1.00.
Limit Orders allow investors to specify the exact price they are willing to accept for a buy or sell order. While Limit Orders are designed to offer more price protection for investors, a Limit Order may not be executed if the price of the security does not reach the price stated in the Limit Order.
Advance fee fraud gets its name from the fact that an investor is asked to pay a fee up front or in advance of receiving any proceeds, money, stock or warrants in order for the deal to go through.
OTC Markets Group Inc. (“OTC Markets”) identifies securities with a Caveat Emptor symbol to inform investors that, in OTC Markets’ opinion, there is reason to exercise additional care and perform thorough due diligence in making investment decisions for a particular security.
Short sellers are subject to price manipulation schemes – or short squeezes. In a short squeeze, traders believing that there are a lot of short sellers begin buying shares to force the price and the short sellers losses higher. These traders hope that the short sellers will be forced to buy pushing the price even higher at which point they can sell their shares at a profit. Short squeezes are easier to execute in illiquid securities.
There is no central ‘exchange’ in the OTC market; therefore, broker-dealers must communicate and trade directly with other broker-dealers. In order to notify other broker-dealers that they are willing to trade a security at a particular price, broker-dealers post their ‘quotes’ on an Inter-dealer Quotation system such as OTC Link. The aggregation and ranking of these quotes defines the ‘market’ for a security. The highest ‘bid’ (purchase price) and lowest ‘ask or offer’ (sale price) becomes the ‘inside market’ or NBBO – the National Best Bid and Offer.
OTC Markets cooperates fully with securities regulators and those regulators are continually working to combat fraud; however, it is not possible to eradicate fraud from the markets. Accordingly, you must be very cautious when making a decision to invest in an OTC security.
Investors in the OTC market vary in their knowledge and experience from large institutional money managers to retail investors. The goal of all of these investors is the same – to generate returns from their investment. OTC Markets Group facilitates information transparency in the OTC market by aggregating and disseminating real-time broker-dealer quote information and operating the platform for companies to provide financial and other corporate disclosure for investors.
With over 275 companies and a combined market capitalization of $1 Trillion, investors are drawn to the transparency, disclosure and quality-control which OTCQX provides.
FINRA applies short sale delivery requirements to those equity securities not otherwise covered by the delivery requirements of SEC Regulation SHO. Reg. SHO applies to all securities of all reporting issuers whether listed for trading on an exchange or quoted in the OTC market. New Rule 4320 expanded Reg.