OTC Bulletin Board

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The OTC (Over-The-Counter) Bulletin Board or OTCBB was a United States quotation medium operated by the Financial Industry Regulatory Authority (FINRA) for its subscribing members. FINRA closed the OTCBB on November 8, 2021. [1]

Contents

The board was used for many over-the-counter (OTC) equity securities that were not listed on the NASDAQ or a national stock exchange, it had shrunk significantly as stock have migrated to the trading facilities of the OTC Markets Group. Broker-dealers who subscribed to the system, which was not electronic, were able to use the OTCBB to enter orders for OTC securities that qualified to be quoted. According to the U.S. Securities and Exchange Commission (SEC), "fraudsters often claim or imply that an OTCBB company is a Nasdaq company to mislead investors into thinking that the company is bigger than it is". [2]

FINRA, an "independent, not-for-profit organization authorized by Congress", ran and provided regulatory services to the OTCBB by "writing and enforcing rules governing the activities of more than 4,100 securities firms with approximately 639,780 brokers". [3] The OTCBB formerly collected 100% of quotes, but that number declined with the rise of its competitor OTC Markets Group, which uses an electronic quotation system. In September 2009, FINRA announced that it would be selling the OTCBB. [4] OTC Markets Group was the leading contender for purchasing the OTCBB, but terms could not be reached. [5] In September 2010, FINRA announced that it had reached terms for the sale of the OTCBB with Rodman & Renshaw, an investment bank. Along with the sale of the OTCBB and, in an effort to provide uniform regulation to all OTC issues and, subsequently, transparency to the OTC market, FINRA has proposed a "quotation consolidation system". Under the quotation consolidation system, FINRA would require dealers to report all of their quotes to the quotation consolidation system, regardless of the market upon which they were originally quoted. This would enable FINRA to have access to all quotes in OTC issues and regulate the OTC market in its entirety. Pink OTC argues this is anti-competitive and an abuse of FINRA's authority.

Companies quoted on the OTCBB had to fully report (i.e., current with all required SEC filings) but there were no market capitalization, minimum share price, corporate governance or other requirements to be quoted. Companies which had been "de-listed" from stock exchanges for falling below minimum capitalization, minimum share price or other requirements often ended up being quoted on the OTCBB.[ citation needed ] An E after the ticker symbol meant that the company was late in its SEC filings. [6]

Stock of non-reporting companies (those without current SEC filings) may be quoted on one of the markets operated by OTC Markets Group. When the OTCBB was operational, most OTCBB companies were dually quoted, meaning they were quoted on both the OTCBB and the one of the OTC Markets Group markets. Stocks traded on these markets are usually thinly traded microcap or penny stocks. Both retail and institutional investors generally avoid them, because of fears that share prices are easily manipulated and the potential for fraud. The SEC issues stern warnings to investors to be aware of common fraud and manipulation schemes. As such, most companies choose to list on more established exchanges such as the NYSE MKT, New York Stock Exchange, or NASDAQ once eligible. For a time, FINRA believed that the proposed "quotation consolidation system" would enhance transparency, thereby decreasing the potential for price manipulation or fraud.

The suffix ".OB" in a stock-ticker listing signifies "over-the-counter bulletin board" according to its Reuters Instrument Code.

See also

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<span class="mw-page-title-main">Pump and dump</span> Form of securities fraud

Pump and dump (P&D) is a form of securities fraud that involves artificially inflating the price of an owned stock through false and misleading positive statements (pump), in order to sell the cheaply purchased stock at a higher price (dump). Once the operators of the scheme "dump" (sell) their overvalued shares, the price falls and investors lose their money. This is most common with small-cap cryptocurrencies and very small corporations/companies, i.e. "microcaps".

<span class="mw-page-title-main">Securities Exchange Act of 1934</span> 1934 U.S. legislation establishing rules and regulatory bodies for financial markets

The Securities Exchange Act of 1934 is a law governing the secondary trading of securities in the United States of America. A landmark of wide-ranging legislation, the Act of '34 and related statutes form the basis of regulation of the financial markets and their participants in the United States. The 1934 Act also established the Securities and Exchange Commission (SEC), the agency primarily responsible for enforcement of United States federal securities law.

<span class="mw-page-title-main">Over-the-counter (finance)</span> Trading done directly between two parties

Over-the-counter (OTC) or off-exchange trading or pink sheet trading is done directly between two parties, without the supervision of an exchange. It is contrasted with exchange trading, which occurs via exchanges. A stock exchange has the benefit of facilitating liquidity, providing transparency, and maintaining the current market price. In an OTC trade, the price is not necessarily publicly disclosed.

Penny stocks are common shares of small public companies that trade for less than one dollar per share. The U.S. Securities and Exchange Commission (SEC) uses the term "Penny stock" to refer to a security, a financial instrument which represents a given financial value, issued by small public companies that trade at less than $5 per share. Penny stocks are priced over-the-counter, rather than on the trading floor. The term "penny stock" refers to shares that, prior to the SEC's classification, traded for "pennies on the dollar". In 1934, when the United States government passed the Securities Exchange Act to regulate any and all transactions of securities between parties which are "not the original issuer", the SEC at the time disclosed that equity securities which trade for less than $5 per share could not be listed on any national stock exchange or index.

<span class="mw-page-title-main">Securities market</span> Component of the wider financial market

Security market is a component of the wider financial market where securities can be bought and sold between subjects of the economy, on the basis of demand and supply. Security markets encompasses stock markets, bond markets and derivatives markets where prices can be determined and participants both professional and non professional can meet.

OTC Markets Group is an American financial market providing price and liquidity information for almost 10,000 over-the-counter (OTC) securities. The group has its headquarters in New York City. OTC-traded securities are organized into three markets to inform investors of opportunities and risks: OTCQX, OTCQB and Pink.

<span class="mw-page-title-main">Market data</span>

For market data as used in marketing, see marketing information system

Securities fraud, also known as stock fraud and investment fraud, is a deceptive practice in the stock or commodities markets that induces investors to make purchase or sale decisions on the basis of false information. The setups are generally made to result in monetary gain for the deceivers, and generally result in unfair monetary losses for the investors. They are generally violating securities laws.

In business and investing, term microcap stock refers to the stock of public companies in the United States which have a market capitalization of roughly $50 million to $300 million. The shares of companies with a market capitalization of less than $50 million are typically referred to as nano-cap stocks. Many micro-cap and nano-cap stocks are traded over-the-counter with their prices quoted on the OTCBB, OTC Link LLC, or the Pink Sheets. The larger, more established micro-caps are listed on the NASDAQ Capital Market or American Stock Exchange (AMEX).

Regulation National Market System is a 2005 US financial regulation promulgated and described by the Securities and Exchange Commission (SEC) as "a series of initiatives designed to modernize and strengthen the National Market System for equity securities". The Reg NMS is intended to assure that investors receive the best (NBBO) price executions for their orders by encouraging competition in the marketplace. Some contend that the rule has contributed to the rise of high-frequency trading, which is sometimes regarded as controversial.

The Financial Industry Regulatory Authority (FINRA) is a private American corporation that acts as a self-regulatory organization (SRO) that regulates member brokerage firms and exchange markets. FINRA is the successor to the National Association of Securities Dealers, Inc. (NASD) as well as the member regulation, enforcement, and arbitration operations of the New York Stock Exchange. The U.S. government agency that acts as the ultimate regulator of the U.S. securities industry, including FINRA, is the U.S. Securities and Exchange Commission (SEC).

<span class="mw-page-title-main">Microcap stock fraud</span> Form of securities fraud

Microcap stock fraud is a form of securities fraud involving stocks of "microcap" companies, generally defined in the United States as those with a market capitalization of under $250 million. Its prevalence has been estimated to run into the billions of dollars a year. Many microcap stocks are penny stocks, which the SEC defines as a security that trades at less than $5 per share, is not listed on a national exchange, and fails to meet other specific criteria.

A national market system plan is a structured method of transmitting securities transactions in real-time. In the United States, national market systems are governed by section 11A of the Securities Exchange Act of 1934.

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In corporate finance, a listing refers to the company's shares being on the list of stock that are officially traded on a stock exchange. Some stock exchanges allow shares of a foreign company to be listed and may allow dual listing, subject to conditions.

The National Market System (NMS) is a regulatory mechanism that governs the operations of securities trading in the United States. Its primary focus is ensuring transparency and full disclosure regarding stock price quotations and trade executions. It was initiated in 1975, when, in the Securities Acts Amendments of 1975, Congress directed the Securities and Exchange Commission (SEC) to use its authority to facilitate the establishment of a national market system. The system has been updated periodically, for example with the Regulation NMS in 2005 which took into account technological innovations and other market changes.

<span class="mw-page-title-main">Stock</span> Shares into which ownership of the corporation is divided

Stock consist of all the shares by which ownership of a corporation or company is divided. A single share of the stock means fractional ownership of the corporation in proportion to the total number of shares. This typically entitles the shareholder (stockholder) to that fraction of the company's earnings, proceeds from liquidation of assets, or voting power, often dividing these up in proportion to the amount of money each stockholder has invested. Not all stock is necessarily equal, as certain classes of stock may be issued, for example, without voting rights, with enhanced voting rights, or with a certain priority to receive profits or liquidation proceeds before or after other classes of shareholders.

A trading halt occurs in the U.S. when a stock exchange stops trading on a specific security for a certain time period. The halt, which can happen a few times a day per security if FINRA deems it, usually lasts for one hour, but is not limited to that. Trading halts can happen any time of day. The listed company is supposed to call the exchange where it is listed, 10 minutes prior to any material news that they are releasing, in order for the exchange to halt the stock before the news is released. The first 5 minutes of a halt is for "news pending" before any information is released that could affect a stock significantly, also known as the "5 minute window".

<span class="mw-page-title-main">Securities market participants (United States)</span>

Securities market participants in the United States include corporations and governments issuing securities, persons and corporations buying and selling a security, the broker-dealers and exchanges which facilitate such trading, banks which safe keep assets, and regulators who monitor the markets' activities. Investors buy and sell through broker-dealers and have their assets retained by either their executing broker-dealer, a custodian bank or a prime broker. These transactions take place in the environment of equity and equity options exchanges, regulated by the U.S. Securities and Exchange Commission (SEC), or derivative exchanges, regulated by the Commodity Futures Trading Commission (CFTC). For transactions involving stocks and bonds, transfer agents assure that the ownership in each transaction is properly assigned to and held on behalf of each investor.

References

  1. ↑ "Regulatory Notice 21-38 | FINRA.org". www.finra.org.
  2. ↑ "SEC.gov | Microcap Stock: A Guide for Investors". www.sec.gov.
  3. ↑ "About FINRA". FINRA. Retrieved 9 December 2014.
  4. ↑ Over-the-Counter Bulletin Board (OTCBB) Sale Announcement. OTCBB.com
  5. ↑ FINRA Proposal Riles OTC Market. Traders Magazine.
  6. ↑ "My Dumbest Investment". The Motley Fool. 15 June 2017. Retrieved 16 February 2018– via Naples Florida Weekly.
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