What is the OTC Market?
What are OTC Markets Group & the OTC Pink Marketplace?
How do OTC Link and the FINRA BB differ?
Who regulates the OTC market?
What are OTC Market hours?
What are OTC Market Tiers?
What is Caveat Emptor (Buyer Beware)?
What is OTCQX?
What is an inter-dealer quotation system?
What is the National Best Bid and Offer (NBBO)?
What are Level 1 and Level 2 Quotes?
What is an American Depositary Receipt (ADR)? Sponsored vs. Unsponsored?
What is the OTC Market? ↑Top
The OTC market refers to the trading of non-exchange listed securities. OTC Markets Group and OTCMarkets.com focus on the OTC equities market, however, an OTC market exists for all security types.
The OTC equity market trades in excess of $600 Million on a daily basis and is regulated by the Securities and Exchange Commission (SEC) and The Financial Industry Regulatory Authority (FINRA). For an overview of the OTC Market, please see our Part 1 – Market Structure section.
What are OTC Markets Group & the OTC Pink marketplace? ↑Top
OTC Markets Group provides electronic quoting and trading technology for the U.S. OTC market. OTC Markets Group’s inter-dealer quotation system – OTC Link – is used by broker-dealers to quote and trade OTC securities. OTC Markets Group also offers a full suite of Issuer Services to OTC companies, including the OTCQX marketplace– the premium U.S. OTC marketplace.
The term OTC Pink (also known as Pink Sheets) is used to represent a group of non-OTCQX and OTCQB securities. OTC Pink securities are divided into 3 market tiers based on their financial information disclosure – OTC Pink Current Information, OTC Pink Limited Information, and OTC Pink No Information.
How do OTC Link and the FINRA BB differ? ↑Top
OTC Markets Group’s OTC Link system and the OTC Bulletin Board are competing inter-dealer quotation systems for OTC securities. OTC Markets Group is a publicly-traded company currently trading on the OTCQX U.S. Premier marketplace. The OTC Bulletin Board is operated by FINRA.
The FINRA BB is only a quotation service and does not offer Issuer Services to its quoted companies. FINRA's BB also does not support electronic trading which is available through OTC Markets Group’s OTC Link system.
The FINRA BB limits quotations to SEC reporting companies while all eligible OTC equity securities may be quoted on OTC Link.
Who regulates the OTC market? ↑Top
The OTC market and broker-dealers’ activities in the market are regulated by FINRA, the SEC and various state securities regulators. As well, companies with SEC-registered securities are regulated by the SEC. OTC Markets Group is neither a stock exchange nor self-regulatory organization (SRO) and is not regulated by FINRA or the SEC.
OTC Markets Group’s quotation and trading system is only open to registered broker-dealers and those broker-dealers are subject to FINRA rules and regulations regarding their conduct and use of the OTC Markets Group systems.
What are OTC Market hours? ↑Top
OTC Markets Group’s quotation and trading systems are available weekdays from 6:00 AM to 5:00 PM. The majority of quoting and trading occurs between the open market hours of 9:30 AM to 4:00 PM (Eastern); however, market participants are free to quote and trade at any time as long as they comply with current regulations (e.g., FINRA Best Execution).
What are OTC Market Tiers? ↑Top
OTC market tiers are a classification schema developed by OTC Markets Group for OTC market securities. All OTC securities are assigned a Market Tier based on their reporting method (SEC Reporting, Alternative Reporing Standard) and disclosure category – Current, Limited or No Information. Securities listed on OTCQX, the highest OTC Market Tier, are required to have Current disclosure in addition to the QX listing requirements. Securities within OTCQB Market Tier must be SEC, Bank or Insuance reporting and must be Current in their disclosure.
The OTC market is made up of many different types of companies, ranging from OTCQX companies that strive to be worthy of investor consideration to economically distressed companies to speculative shell companies. OTC market tiers help bring transparency to investors and regulators. More on OTC Market Tiers.
What is Caveat Emptor (Buyer Beware)? ↑
Top
Caveat Emptor (Buyer Beware) is an additional label that OTC Markets Group assigns to securities where there is a public interest concern. This concern may be the result of a spam campaign, questionable stock promotion, known investigation of fraudulent activity committed by the company or insiders, regulatory suspensions, or disruptive corporate actions. Any security that is labeled Caveat Emptor and does not have ‘Current’ disclosure will have its quotes blocked on OTCMarkets.com. More on Caveat Emptor.
What is OTCQX? ↑Top
The OTCQX marketplace is the premier tier of the U.S. OTC market. Investor-focused companies use the quality controlled OTCQX listing platform to offer investors transparent trading, superior information, and easy access through regulated U.S. broker-dealers. The OTCQX marketplace is segmented into OTCQX International for foreign companies who wish to cross-list and OTCQX U.S. for domestic companies that want to use OTCQX as their primary listing venue. For more information on the OTCQX marketplace, QX companies and the listing requirements and process, please see OTCQX.com.
What is an inter-dealer quotation system? ↑Top
An inter-dealer quotation system is a software application that allows FINRA registered broker-dealers to insert, update, and withdraw quotes for specific securities. In the OTC market, the two inter-dealer quotation systems are OTC Link operated by OTC Markets Group and the OTC Bulletin Board operated by FINRA.
What is the National Best Bid and Offer (NBBO)? ↑Top
The National Best Bid and Offer (NBBO) is the highest price an investor is willing to pay for a specific security (Best Bid) and the lowest price an investor is willing to sell a security (Best Offer). In the OTC market, the NBBO is calculated by ranking quotes entered into the OTC Link system or in the case or ‘Dually Quoted’ securities ranking quotes across OTC Link and the FINRA BB. For FINRA BB only securities, the NBBO is calculated using only those quotations entered into the FINRA BB system.
An NBBO is created if there are two or more “priced quotations” (price greater than 0) on both sides of the market (bid or offer). If these conditions are not met than an NBBO is not available.
What are Level 1 and Level 2 Quotes? ↑
Top
OTC quotation data is distributed in two formats – Level 1 and Level 2. Level 1 represents the “inside” quotation – the highest bid and lowest ask for a security. If there are two priced quotes on both sides of the market (bid and ask) then the “inside” is also known as the NBBO – National Best Bid and Offer (see NBBO) . Level 1 data does not note the broker-dealers associated with the quotations; only price and size (number of shares) and update time is distributed for each side of the market.
Level 2 data includes all price data from all broker-dealers quoting a security. Broker-dealer names are included in Level 2 data along with price, size, and quote update time.
For more information on market data, please see our Data Products section.
What is an American Depositary Receipt (ADR)? Sponsored vs. Unsponsored? ↑Top
An American Depositary Receipt (ADR) represents ownership in the shares of a non-U.S. company that trades in U.S. financial markets. ADR programs are created by depositary banks in order to help foreign companies gain access to U.S. investors and to respond to market demand. An ADR program issues American Depositary Shares (ADS) which carry prices in U.S. dollars, pay dividends in U.S. dollars, and may be traded like the shares of U.S.-based companies. Since the ADR is based on the common shares of the non-U.S company, the price of an ADR will often move in synch with the price of the underlying common shares once the ADR to common share ratio and currency rate is considered.
A sponsored ADR is where the company has a formal agreement with the depositary bank issuing the shares of the ADR. Conversely, no agreement is in place for an unsponsored ADR. Unsponsored ADR programs may not provide shareholders with all the benefits of direct ownership (i.e., voting rights) that are often granted to sponsored ADR shareholders.
Currently, over 1,100 ADRs are quoted in the OTC market.
