OTC Business Solutions

OTC Markets

What is the OTC Market?

In essence, the OTC market exists to make the securities marketplace fairer for smaller, lower capitalized companies. The OTC market affords these smaller companies with some of the benefits of being publicly traded, even though they may fall short on NASDAQ or stock exchange listing requirements. Stock quotes for thee companies are features on the Pink Sheets Electronic Quotation Service or NASDAQ OTC Bulletin Board Service (if they are SEC reporting companies).

What does Pink Sheets mean?

For starters, the Pink Sheets is not an exchange, but more so a centralized quotation service that collates and features for OTC securities. The Pink Sheet system is intended for non-reporting companies and does not list bid and ask prices of securities.

The Pink Sheet system's web site provides price quotes, financial news and relevant information pertaining to OTC companies. Theoretically, the Pink Sheets system offers a fair and equal forum for OTC companies in order to give them a fighting chance against larger, better capitalized, publicly traded companies.

The mission of the Pink Sheets is to create greater transparency in the OTC markets, by using state-of-the-art Internet technology to give investors the information they need to make informed investment decisions. The Pink Sheets is not a stock exchange or a regulated entity. Price quotations are provided by OTC market makers and company information is provided by the OTC companies.

What are the benefits of being traded on the OTC Bulletin Board as opposed to being on the Pink Sheets?

Full reporting are indeed held to a higher level of scrutiny than non-reporting Pinks, but the fact that OTC Bulletin Board companies must file reports to the SEC means that investors and institutions have access to more information on those companies. More information in circulation has a tendency to build investor awareness. In addition, many financial firms and institutions have guidelines that prohibit them from trading in Pink Sheets or recommending them to their clients.

If being traded as a Bulletin Board is more desirable, then why do companies opt to be non-reporting and trade on the Pink Sheets?

Non-reporting companies still have some serious attributes and spend less time and money keeping up with filing requirements than their OTC Bulletin Board counterparts. Non-reporting Pink Sheet companies can still conduct Reg D 504 Offerings and raise up to $1,000,000 in any twelve month period. The Securities Act of 1933 established Regulation D or “Reg D” which is simply an exemption from registration requirements when raising equity within specific guidelines. Bulletin Board companies do not enjoy the benefits of this provision and must meet filing requirements because they are held to a higher standard. How do stocks become listed on the NASDAQ?

Pinks and/or Bulletin Board stocks can evolve and eventually apply for listing on the NASDAQ market, American Stock Exchange (AMEX) or the New York Stock Exchange (NYSE). There are two levels of the NASDAQ markets, each with different requirements. The first level is the NASDAQ Small Cap market. The next tier up is the NASDAQ National Market System which has the highest standards. The AMEX and NYSE have their own requirements as well. Where a stock is listed is determined by a variety of factors including the company's assets and how long they been in existence.