When a stock doesn’t meet the listing standards of the NYSE, NASDAQ, or other exchanges, it may trade in over-the-counter (OTC) markets instead. Many of these markets operate under the OTC Markets Group.
Sidenote
Financial requirements Issuers must meet certain financial requirements to be eligible for trading in certain markets. Financial requirements can include market capitalization, minimum share price, and minimum shareholder equity. You may need to know when financial requirements exist and how stringent they are for the exam, but generally do not need to know the specifics.
The OTC Markets Group developed from the old “Pink Sheets,” a publication that printed stock quotes on pink-colored paper in the early 1900s. The Pink Sheets originally served as a place for lesser-known issuers that didn’t meet the financial requirements to trade on major exchanges. Today, the OTC Markets Group fills a similar role in a modern, electronic format.
It’s divided into three prominent segments:
The OTCQX
The OTCQB
The OTC Pink Market
The Over-The-Counter Bulletin Board (OTCBB) was shut down by FINRA in November 2021, and is not part of the OTC Markets Group. The OTCQX is the most prestigious market within the OTC Markets Group. Even though many OTCQX companies don’t meet NYSE or NASDAQ listing standards, OTCQX has its own financial and reporting requirements. Companies listed on this market:
Can’t be bankrupt
Can’t be penny stocks (unlisted stocks that trade below $5 per share)
Must have audited financial disclosure documents
If you want the full details, see the requirements for US issuers to be listed on the OTCQX (this level of detail is generally not tested). The OTCQB, sometimes referred to as a venture market, is designed for smaller, developing companies. These issuers typically don’t meet OTCQX standards because they’re earlier in their business cycle. OTCQB still has listing requirements. For example, companies:
Can’t be bankrupt
Must have at least 50 shareholders
Are required to be audited
The specific details are usually not tested, but you can find them in the OTCQB listing requirements. All other securities that don’t meet the financial or reporting requirements of the NYSE, NASDAQ, OTCQX, or OTCQB may trade on the OTC Pink Market. The Pink Market has no financial or listing requirements, which means it can include:
Bankrupt or distressed companies
Companies that choose not to provide financial reporting to investors
Because transparency can be limited, many OTC Pink Market securities are very risky. If you want more background, see the real-world Pink Market (this information is typically not tested). The Over-The-Counter Bulletin Board (OTCBB), which was shut down by FINRA in November 2021, is not part of this group. Trades in these markets are considered second market trades. As a reminder, a trade of a non-listed stock (not listed on the NYSE or NASDAQ) in the OTC markets is considered a second market trade.
Key points
OTC Markets Group
OTC market trading non-listed stocks
Made of three sub-markets:
OTCQX
OTCQB
OTC Pink Market
OTCQX
Highest listing standards of OTC Markets Group
Financial and reporting requirements exist
OTCQB
Also known as a venture market
The trading market for smaller developing companies
OTC Pink Market
Least prestigious of OTC Markets Group
No listing or financial requirements
Market for bankrupt and distressed companies
When a stock doesn’t meet the listing standards of the NYSE, NASDAQ, or other exchanges, it may trade in over-the-counter (OTC) markets instead. Many of these markets operate under the OTC Markets Group.