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The OTC Markets

Over-The-Counter – OTC

What Is Over-The-Counter?

Over-the-counter (OTC) refers to the process of how securities are traded for companies that are not listed on a formal exchange such as the New York Stock Exchange (NYSE) or NASDAQ. Securities that are traded over-the-counter are traded via a broker-dealer network as opposed to on a centralized exchange. These securities do not meet the requirements to have a listing on a standard market exchange.

Trade transactions take place through the Over the Counter Bulletin Board (OTCBB) or the Pink Sheets listing services. The OTCBB is an electronic quotation and trading service that facilitates higher liquidity and better information sharing. Pink Sheets is a private company that works with broker-dealers to bring small company shares to market.

OTC companies are divided into three tiers -- OTCQX, OTCQB and OTC Pink depending on how much disclosure they offer.  The 350 OTCQX companies  must provide audited financials if they are domestic. If they are foreign, they must have filed with their home stock exchange. Two hundred fifty of that top tier are foreign companies including such well-known firms as Axa, BASF, Deutsche Telecom, Roche and Adidas.

The main reason the big international companies list their ADRs on the OTC market is that they don’t have to create a separate filing with the SEC, nor do they have to comply with the governance rules of Sarbanes-Oxley. They still get about 85 percent of the liquidity that they would have on NYSE-Euronext or NASDAQ.


Companies listed via pink sheets include:

  • Tencent Holdings LTD (TCEHY), the Chinese multimedia company

  • Nestle SA (NSRGY), the food and beverage giant

  • Bayer A.G. (BAYRY), a health care company

OTC Networks

The OTC Markets Group operates some of the most well-known networks, such as the Best Market (OTCQX), the Venture Market (OTCQB), and the Pink Open Market. Although OTC networks are not formal exchanges such as the NYSE, they still have eligibility requirements. 

Through the OTC marketplaces, you can find the stocks of companies that are small and developing. Depending on the listing platform, these companies may also submit reports to the Securities and Exchange Commission (SEC) regulators. OTCBB stocks will usually have a suffix of "OB" and must file financial statements with the SEC.

Another trading platform is the Pink Sheets and these stocks come in a wide variety. These businesses do not meet the requirements of the SEC. While buying shares of this nature may involve less transactional costs, they are prime for price manipulation and fraud. These stocks will usually have a suffix of "PK" and are not required to file financial statements with the SEC.

Although Nasdaq operates as a dealer network, Nasdaq stocks are generally not classified as OTC because the Nasdaq is considered a stock exchange. 

Pros and Cons of the OTC Marketplace

Most financial advisors consider trading in OTC shares as a speculative undertaking. For this reason, investors must consider their investment risk tolerance and if OTC stocks have a place in their portfolios. However, with the added risk of OTC shares comes the possibility of significant returns. Since these shares trade at lower values, and usually for less transactional costs, they provide an avenue for share price appreciation.

The OTC marketplace is an alternative for small companies or those who do not want to list on the standard exchanges. Listing on a standard exchange is an expensive and time-consuming process, and outside the financial capabilities of many smaller companies. Companies may also find that listing in the OTC market provides quick access to capital through the sale of shares. 


  • OTC provides access to securities not available on standard exchanges such as bonds, ADRs, and derivatives.

  • Fewer regulations on the OTC allows the entry of many companies who can not, or choose not to, list on other exchanges.

  • Through the trade of low-cost, penny stock, speculative investors can earn significant returns.


  • OTC stocks have less trade liquidity due to low volume which leads to delays in finalizing the trade and wide bid-ask spreads.

  • Less regulation leads to less available public information, the chance of outdated information, and the possibility of fraud.

  • OTC stocks are prone to make volatile moves on the release of market and economic data.

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