Companies involved in over-the-counter (“OTC”) exchange trading face a choice – which exchange do I pick? If your company is not trading on a major exchange like NASDAQ or NYSE, there are a few options at play in OTC trading, with some more popular than others.
The Financial Industry Regulatory Authority (“FINRA”) operates the OTC Bulletin Board (“Bulletin Board”), traditionally a “fan favorite” among companies trading in OTC markets.
However, there has recently been a major change in how companies are trading, what options they have, and where their loyalties lie. The Bulletin Board is seeing the lowest number of companies in some time, and with the recent renovation, or rather near removal of its website, its popularity seems to be on the decline. A few factors are at play here, with the most notable being that the rules and requirements of this exchange are more stringent than others.
For instance, companies quoted on the Bulletin Board must fully report on financial performance. However, as an upside, there are no market capitalization, minimum share price, corporate governance, or other requirements at play. Companies which have been “de-listed” from stock exchanges for falling below minimum capitalization, minimum share price, or other requirements, often end up being quoted on this exchange.
As the SEC piles on regulatory requirements, and companies face increased pressure to comply, more are turning to the less complex OTC Markets Group, previously known as Pink Sheets, with its three exchanges seeing a surge in participation:
So, how do these OTC Markets Group marketplaces differ? Here’s a guide to what you should know about the ins and outs of the financial standards necessary for each.
OTC Markets Group
Today, most companies that do not trade on a major exchange are listed on the OTC Markets Group. Unlike securities listed on the US stock exchanges, securities on the OTCQX, OTCQB and OTC Pink marketplaces may trade without being registered with the SEC.
To help investors analyze, value, and trade securities, OTC Markets Group categorizes the 10,000 securities trading on the three marketplaces based on the quality and quantity of information provided.
Here are the checklists you can use to determine where your company fits:
OTCQX – ‘The Best Marketplace’ Requirements
The OTCQX is for companies qualified by high financial standards, the quality of their disclosures and sponsorship by a third party advisor.
Find the full checklist here: http://www.otcmarkets.com/services/companies/services-overview
OTCQB – ‘The Venture Marketplace’ Requirements
The OTCQB is designed for entrepreneurial and development companies that are current in their reporting but may not yet qualify for OTCQX.
Current U.S. SEC reporting and bank reporting companies, and, for the first time, International Reporting companies listed on a Qualified Foreign Stock Exchange, will be eligible for OTCQB.
Securities of companies that do not meet the OTCQB standards or qualify for OTCQX will likely continue to be traded by broker-dealers on OTC Pink.
All companies are required to post their initial disclosure on the OTC Markets website and make an initial certification. They must also file initial and annual certifications signed by the CEO and/or CFO.
Find the full checklist here: http://www.otcmarkets.com/content/doc/otcqb/standards.pdf
OTC Pink – ‘The Open Marketplace’ Requirements
Companies that neither qualify for OTCQX nor comply with OTCQB requirements are traded on OTC Pink – an open marketplace designed for broker-dealers to electronically trade securities without any company involvement.
The OTC Pink, which includes high risk, highly speculative securities, is divided into three tiers: Current Information, Limited Information and No Information, based on the level of disclosure and public information made available by the company either through the SEC or posted on OTC Markets. There are no qualitative standards beyond disclosure for OTC Pink companies, which include companies in all stages of development as well as shell and blank check entities.
For more information on what’s required in each tier, visit the OTC Markets website to learn more.