What Is OTC Markets Group Inc.?
The OTC Markets Group is the owner and operator of the most substantial U.S. inter-dealer electronic quotation and trading system for over-the-counter (OTC) securities. It provides marketplaces for trading more than 11,500 OTC securities.
Key Takeaways
- OTC Markets Group Inc. is the largest U.S. marketplace for OTC securities with over 11,500 securities listed as of 2022.
- OTC Markets Group Inc. provides services in three core areas, namely trading services, market data, and corporate services.
- OTC securities are listed in three tiers: OTCQX, which has the most stringent listing requirements, the OTCQB, which is the venture market, and the Pink Open Market, which includes companies in financial distress or bankruptcy.
- Of the three tiers, the Pink Open Market is the largest in terms of the number of companies and trade volume.
- The handling of most OTC securities trading in the U.S. is on the company’s OTC Link platform, an alternative trading system registered with the SEC.
Understanding OTC Markets Group Inc.
OTC Markets Group Inc. provides services in three core areas that are essential for better-informed and more efficient financial markets. The fields are trading services, market data, and corporate services.
Through the trading services division, OTC Markets Group connects broker-dealers together which provides the liquidity and infrastructure for executing trades on the OTC market. The market data division provides data and quote services for more than 11,500 OTC securities. The corporate services division helps companies go public and gain greater visibility through listing in one of OTC Markets Group's three OTC tiers.
The company was preceded by the National Quotation Bureau, which was founded in 1904. Prior to being called the OTC Markets Group Inc., the National Quotation Bureau renamed itself Pink Sheets LLC in 2000 and then Pink OTC Markets Inc. in 2008. The change to the OTC Markets Group name came in 2011.
The handling of most OTC securities trading in the U.S. is on the company’s OTC Link platform, an alternative trading system registered with the Securities and Exchange Commission (SEC) as a broker-dealer. OTC Markets Group has its headquarters in New York City and is publicly traded on theOTCQX marketplace under the symbol OTCM.
As of March 7, 2022, the dollar volume is $219 million and the share volume is $1.4 billion. These stats are for all three tiers combined. The OTC Pink is the largest tier in terms of the number of companies listed within it.
OTC Markets Group Inc.Tier Structure
The most visible aspect of the OTC Markets Group's stewardship is the breakdown of the OTC market into three tiers, based on the quality and quantity of the listed companies’ information and disclosures. Thistiered structure provides different levels of transparency, so investors know what type of information is available for each company they wish to trade.
OTCQX
OTCQX is the top tier of the three marketplaces for the OTC tradingof stocks. Stocks that trade on this forum must meet more stringent qualification criteria compared to the other levels.Also called the OTCQX Best Market, itincludes a large number of blue-chip stocks from Europe, Canada, Brazil, and Russia. These large foreign stocks are frequently global household names.Penny stocks, shell companies, and companies in bankruptcy cannot qualify for a listing on the OTCQX.
OTCQB
The middle tier is calledOTCQB,also known asthe Venture Market,whichconsists of early-stage and developing U.S. and international companies that are not yet able to qualify for theOTCQX. The company must be current in its reporting, undergo an annual verification, management certification, meet a $0.01 bid test, and must not be in bankruptcy to meet eligibility standards.
The OTC Markets Group has created many financial indexes, such as the OTCQX Banks, OTCQX Dividend, and OTCQX Canada.
Companies listed here report to a U.S. regulator such as the SEC or Federal Deposit Insurance Corporation (FDIC). The OTCQB replaced the Financial Industry Regulatory Authority (FINRA)-operated OTC Bulletin Board (OTCBB) as the main market for trading OTC securities that report to a U.S. regulator. Because it has no minimum financial standards, the OTCQB includes shell companies, penny stocks, and small foreign issuers.
OTC Pink
OTC Pink, or Pink Sheets, is the lowest level and most speculative tier of the three marketplaces for the trading of over-the-counter stocks. This marketplace offers trading in a wide range of equities and includes companies in default or financial distress.
Because it has fewer disclosure requirements, the categorization of OTC Pink companies is from information provided by the company. Note that as of Sept. 28, 2021, OTC Pink (as well as all other OTC Markets Group lines) will require companies on the platform to provide up-to-date disclosures, pursuant to SEC Rule 15c2-11.
What Does OTCM Stand for?
"OTCM" Stands for over-the-counter market, which is a market where parties transact the buying and selling of securities with one another without a centralized exchange facilitating the process. "OTCM" can also refer to OTC Markets Group, which owns and operates a trading system to facilitate OTC trading.
Who Runs OTCM?
OTCM is run by itself. It is a publicly-traded company that is headquartered in New York. The President and CEO is Cromwell Coulson.
What Is the Difference Between Stock Exchanges and the OTC Market?
The OTC market facilitates the trading of financial securities between two parties without the oversight of an exchange. A stock exchange is an exchange that oversees the buying and selling of stocks. Stock exchanges allow for more liquidity, oversight, and transparency than OTC markets.
Is the OTC Market Safe to Trade?
OTC markets are safe to trade but there are some risks with the process, such as less information available about the securities and less liquidity. Picking companies in the tiers that have stronger financial standards can help reduce the risks in OTC trading.
What Is the Process for Listing a Public Company in the OTC Market?
To be able to trade in the OTC market, a company must be sponsored by a market maker. The market maker will sponsor the issue as market makers are the only ones allowed to apply to have a quote listed.
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