The OTC Markets Group is a financial market that provides price and liquidity information for over-the-counter securities. People trade OTC securities with each other without an exchange or middlemen. The OTC Markets Group is located in New York City and offers its traders and investors three markets: OTCQX, OTCQB, and Pink.
OTC Markets Group History
The OTC Markets Group was formerly known as the National Quotation Bureau (NQB), which was established in 1913. The NQB posted stock and bond prices in paper form: Pink Sheets and Yellow Sheets. In 1999 they launched the Electronic Quotation Service, which was a digital version of the paper-based quotations. The National Quotation Bureau renamed itself Pink Sheets and later Pink OTC Markets. Nowadays the name is OTC Markets Group. 89 brokers use their electronic trading platform to trade financial assets.
Companies don’t need to file with the SEC to be listed on the platform and foreign companies can be listed on the platform through American Depository Receipts. American companies that don’t meet the requirements to be listed on bigger exchanges are traded on the OTC Markets platform. Because these companies don’t report their financial statements, it is difficult for investors to find reliable information about them. They are risky investments.
Companies traded on the OTC Markets Group fall into one of three markets: the OTCQX market, the OTCQB market, or the Pink market. The timeliness of a company’s disclosure determines its designated market. The OTCQX market includes companies that want exposure to U.S. investors and domestic start-ups. The OTC Markets Group reviews these companies before listing them. They also have to be overseen by approved third-party law firms or investment banks, called OTCQX Sponsors.
The OTCQB market includes companies with a minimum share value of $0,01. Each listed company must verify their company information is correct yearly. Companies listed on the Pink markets can upgrade to the OTCQB market if they publish their 12g3-2(b) compliant disclosure. The Pink market contains companies that aren’t listed or registered anywhere else. There are no reporting requirements for these companies.
OTC QX/QB Blue Sky Status
Blue Sky Laws require companies to provide financial details to prevent securities fraud. In most states, the OTCQX Market and OTCQB Market have Blue Sky Status.
Information Providing Status
Listed companies can be categorized as Current Information, Limited Information, No Information, or Caveat Emptor. Companies that have provided quarterly reports for at least two years are Current. Companies that have submitted information within the last six months, but haven’t provided quarterly reports for two years are Limited. Companies that haven’t disclosed any information are No Information. Whenever a company looks like it could be part of a spam campaign, stock promotion, or conduct a fraudulent activity, it will be categorized as Caveat Emptor.
Risks of Trading OTC Markets
Most stocks on OTC Markets are penny stocks. There is high risk involved with trading penny stocks as there is little company information available and many scams going on.
OTC Markets Alternatives
Alternatives for the OTC Markets are the OTC Bulletin Board and the Grey Market.
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