15th Nov 2009 by Joseph Pousada
The OTC (Over the counter) market is a negotiated market between market makers. There is no one physical place like an exchange but everything is electronic today with market makers located in various physical locations. In the United States stocks will be listed on an exchange or trade in the OTC. It is important to note that most bonds trade on the OTC as well. The Nasdaq OTC market has listing standards and has two levels. The first is the “Nasdaq Capital Market” (formally known as “Nasdaq Small Cap.”) and there are a set of financial criteria that needs to be met to be eligible to apply for listing. Another listing is the “Nasdaq National Market” (NNM) with a stricter set of financial criteria to be eligible to apply for listing. Typically the companies listed on the NNM tend to have a larger market capitalization. The OTCBB does not have listing standards like Nasdaq Stocks or exchange traded stocks. It is primarily a quotation service for market makers but does require “securities which began being quoted on the OTCBB after January 4, 1999” (See Reference) to file financial information with a regulatory authority periodically. Pink sheets does not have this requirement and is a private company that provides quotation services for different market makers. Many over the counter stocks can be quite risky investments and it is important to review any investment with your financial advisor before investing.
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