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Many OTC equities are Penny Stocks. Penny Stocks Can be Very Risky. Due to the high level of risk involved in investing in Penny Stocks, brokers cannot sell a Penny Stock to any person unless it has approved that person's account for penny stock transactions and the broker/dealer has received agreement to the transaction in writing from the customer.
Indicates companies that are not able or willing to provide disclosure to the public markets - either to a regulator, an exchange or OTC Markets Group. Companies in this category do not make Current Information available via OTC Markets Group's News Service, or if they do, the available information is older than six months. This category includes defunct companies that have ceased operations as well as 'dark' companies with questionable management and market disclosure practices. Publicly traded companies that are not willing to provide information to investors should be treated with suspicion and their securities should be considered highly risky.
The OTC Bulletin Board (OTCBB) is a listing of securities that are also traded "over the counter" similar to the OTC Markets. OTCBB companies are required to file timely reports to a US regulatory agency. Almost all OTCBB companies are also quoted via OTC Markets' electronic quotation system.
The OTC market provides an alternative to stock exchange listing for securities of issuers that either choose not to be listed on a U.S. stock exchange or do not meet the relevant listing requirements. The term ‘OTC security’ is a catch–all phrase for any security that is not listed on a U.S. stock exchange.
The OTC market does not have this limitation. They may agree on an unusual quantity, for example. In OTC market contracts are bilateral (i.e. contract between only two parties), each party could have credit risk concerns with respect to the other party. OTC derivative market is significant in some asset classes: interest rate, foreign exchange, equities, and commodities.
OTC Link allows broker-dealers to quote any OTC equity security eligible for quoting under SEC Rule 15c2-11. Currently, there are over 10,000 securities quoted on the OTC Link system. Broker-dealers access the OTC Link system either through OTC Markets Group’ OTC Dealer or OTC FIX applications. These applications allow broker-dealers to view all quotes for OTC securities and, if desired, trade those securities through OTC Link.
To be quoted on the platform, companies are not required to file with the SEC, although many choose to do so.[6] A wide range of companies are quoted on OTC Markets, including firmly established foreign firms,[7] mostly through American Depositary Receipts (ADRs). In addition, many closely held, extremely small and thinly traded US companies have their primary trading on the OTC Markets platform.
The margin account agreement generally provides that the securities in your margin account may be lent out by the brokerage firm at any time without notice or compensation to you. The firm's lending of securities does not affect the value of your account.
In addition, US companies must be ongoing operations (no shells etc.) and may not be in bankruptcy, while foreign issuers must meet the requirements of qualified Non-US exchanges.[9][14] Additional oversight of OTCQX securities is provided by requiring every issuer to be sponsored by approved third-party investment banks or law firms, called Principal American Liaison (PAL) for non-US issuers and Designated Advisors For Disclosure (DADs) for US issuers.
The fee may be in the form of a commission, regulatory fee or tax, or some other incidental expense. These secondary "advance fee" schemes work very similarly to boiler room operations, the difference being that an advance fee scheme generally targets investors who already purchased underperforming securities, perhaps through an affiliated boiler room, offering to arrange a lucrative sale of those securities, but first requiring the payment of an “advance fee.â€
Once broker-dealers accept an offer to trade through OTC Link or through another means of communication, they must report, clear, and settle the trade. Part of this process is the confirmation of the trade with the investor; however, the trade will not be complete until final settlement (the delivery of funds by the buyer and securities by the seller), which, for equity securities is generally three business days after the trade date (T 3).
To initiate quotations in any OTC Equity security or resume quotations after a four day absence or SEC suspension on either the OTC Link or OTCBB inter-dealer quotation system, a market maker must first obtain and review certain specified information regarding the issuer. The information requirements are specified in the SEC's Rule 15c2-11. The information is supplied to FINRA on Form 211. When approved by FINRA, the member may submit its quotation to OTC Link or the OTCBB, as sufficient reliable current information is available in the marketplace to support the member’s quotation.
When opening a new account, the brokerage firm may ask you to sign a legally binding contract to arbitrate any future dispute between you and the firm or your sales representative. Signing this agreement means that you give up the right to sue the firm or your sales representative in court.
In a new account agreement, you must specify your overall investment objective in terms of risk. Categories of risk may have labels such as "income," "growth," or "aggressive growth."
Broker-dealers often receive buy and sell orders that ‘match’ – meaning, someone is willing to sell a security for the same price someone else is willing to buy the same security. In this situation, broker-dealers will execute the trade “internallyâ€.
In an ideal world, market makers want to buy at the bid price and sell at the ask price. This scenario allows them to have very little risk and make “the spread” on each share transacted. Unfortunately for market makers, this scenario is not extremely common due to price volatility – movements in the price of a security.
The margin account agreement generally provides that the securities in your margin account may be lent out by the brokerage firm at any time without notice or compensation to you. The firm's lending of securities does not affect the value of your account.
Current Information - Reporting companies that submit filings to regulators with powers of review and that make the filings publicly available or non-reporting companies that make current information publicly available on the OTC Disclosure and News Service pursuant to OTC Markets OTC Pink Basic Disclosure Guidelines.
To trade OTC securities you must open an account with a brokerage firm that deals in OTC securities. Investors cannot buy or sell securities directly through OTC Markets Group.
The company was first established in 1913 as the National Quotation Bureau (NQB). For decades, the NQB reported quotations for both stocks and bonds, publishing the quotations in the paper-based Pink Sheets and Yellow Sheets respectively. The publications were named for the color of paper on which they were printed. In September 1999, the NQB introduced the real-time Electronic Quotation Service.
Although they may not be required to make financial information available to the public, many OTC-traded companies do so voluntarily. You can search our Financial Reports to obtain the reports of any issuer that has voluntarily provided their financials and other disclosure to investors via the OTC Disclosure and News Service.
Be wary of buying stocks on margin. Make sure you understand how a margin account works, and what happens in the worst case scenario before you agree to buy on margin.
Limit Order – a limit order does have a set price and therefore may only be executed at the set price; however, a limit order may never get executed because the market may move away from the set price. Those who use limit orders risk not having a order executed.
Companies create and sell securities in the market to raise capital, complete an acquisition and/or allow selling shareholders to exit their investments.
OTC issuers are not required to maintain current address or contact information with OTC Markets Group. With the exception of OTCQX companies, OTC Markets does not maintain listing agreements with OTC traded companies and has no other means of compelling companies to provide this information. Many investor-focused issuers do voluntarily provide their contact information and keep it current.
They often enlist respected community or religious leaders from within the group to spread the word about the scheme, by convincing those people that a fraudulent investment is legitimate and worthwhile. Many times, those leaders become unwitting victims of the fraudster's ruse. //
Clearing and Settlement – For OTC equity transactions, clearing and settling, the matching of trades and the movement of money and securities, is often handled by third-party firms for the broker-dealers.
Due to the broad range of OTC companies, OTC Markets Group organizes these securities into tiered marketplaces to inform investors of opportunities and risks.
Companies that follow the International Reporting Standard or the Alternative Reporting Standard by making filings publicly available through the OTC Disclosure
They often enlist respected community or religious leaders from within the group to spread the word about the scheme, by convincing those people that a fraudulent investment is legitimate and worthwhile. Many times, those leaders become unwitting victims of the fraudster's ruse. //
In the OTC market, companies that qualify and are current in their financial disclosure may choose to apply their currently tradeable security(ies) for OTCQX. Companies may also choose to provide adequate disclosure either to regulators or OTC Markets Group in order to be classified in a ‘Current’ OTC Market Tier.
Investor-focused companies may use either the OTCQX requirements, SEC Reporting or OTC Markets Alternative Reporting Standard to provide transparency to individual investors and the professional investment community. These services increase the flow of information, raise the profile of OTC companies, improve price discovery, and increase trading and liquidity in the OTC market.
Short Position Disclosure (Rule FINRA 4560) – FINRA members must report their short interest positions in OTC equity securities at mid-month and end of the month.
Companies that have submitted information no older than six months to the OTC Markets data and news service or have made a filing on the SEC's EDGAR system in the previous six months are rated as having current information. This category includes shell companies or development stage companies with little or no operations as well as companies without audited financial statements.
In a new account agreement, you must specify your overall investment objective in terms of risk. Categories of risk may have labels such as "income," "growth," or "aggressive growth."
There is a wide range in the quality of issuers whose securities are traded Over the Counter (OTC) - from major international conglomerates to very small, highly speculative companies. Therefore, investors should conduct thorough research prior to making an investment decision.
OTCQB companies must be registered with and reporting to the SEC or a U.S. regulatory agency. There are no financial or qualitative standards to be in this tier.
OTC Markets Group, Inc. (OTCQX: OTCM), headquartered in New York City, operates a financial marketplaces platform providing price and liquidity information for almost 10,000[3] over-the-counter (OTC) securities. OTC-traded securities are organized into three marketplaces to inform investors of opportunities and risks: OTCQX, OTCQB and OTC Pink.
Under the Securities Act of 1933, a company that offers or sells its securities must register the securities with the SEC or find an exemption from the registration requirements. The Act provides companies with a number of exemptions. For some of the exemptions, such as rules 505 and 506 of Regulation D, a company may sell its securities to what are known as "accredited investors."
No Information - Companies that are not able or willing to provide disclosure to the public markets - either to a regulator, an exchange or OTC Markets.