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WIKI ANALYSIS
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This article describes a stock exchange on which stocks and other securities are traded. View articles referencing this exchange. |
The OTC Bulletin Board, or OTCBB, is an electronic inter-dealer quotation system that displays real-time quotes, last-sale prices and volume information for many over the counter (OTC) equity securities that are not listed on the NASDAQ, NYSE or any other national securities exchange. The OTCBB started operations in 1990, with the aim to provide transparency in the OTC market, facilitating the dissemination of quotation and last-sale information as a pilot program. The SEC approved the operation of the OTCBB on a permanent basis only in 1997.OTCBB securities include national, regional and foreign equity issues, warrants, units, American Depositary Receipts (ADRs) and Direct Participation Programs (DPPs).
Any broker-dealer who subscribes to the system can use the OTCBB to look up prices or enter quotes for OTC securities.
Issuers quoted on the OTCBB must be fully reporting (i.e. current with all required SEC filings) but have no market capitalization, minimum share price, corporate governance or other requirements to be quoted.
Companies which have been delisted from stock exchanges for falling below minimum capitalization, minimum share price or other requirements often end up being quoted on the OTCBB.
Shares of non-reporting companies (those without current SEC filings) may be quoted in the Pink Sheets. Most OTCBB companies are dually quoted, meaning they are quoted on both the OTCBB and the Pink Sheets.
The SEC issues stern warnings to investors to beware of common fraud and manipulation schemes when investing in OTC markets including the OTCBB and Pink Sheets. As such, most companies choose to list on more established exchanges such as the AMEX, NYSE or NASDAQ once eligible.
What Investors Should Know
- The OTCBB is a quotation medium for subscribing members, not an issuer listing service, and should not be confused with the NASDAQ stock exchange.[1]
- There are no minimum quantitative standards which must be met by an issuer for its securities to be quoted on the OTCBB. However, the new OTCBB Eligibility Rule limits quotations on the OTCBB to the securities of issuers that are current in their reports filed with the SEC or other regulatory authority.[1]
- Issuers do not have any filing or reporting requirements with NASDAQ or FINRA. Market makers will be required to provide the periodic financial reports filed by OTCBB issuers with the SEC or other regulatory authorities pursuant to the OTCBB Eligibility Rule.[1]
- NASDAQ has no business relationship with the issuers of securities quoted on the OTCBB.[1]
- Investors must contact a broker-dealer to trade OTCBB securities. Investors do not have direct access to the OTCBB service.
- The SEC Order-Handling Rules which apply to NASDAQ-listed securities do not apply to OTCBB securities.[1]
Reporting Requirements
Since July 2000, all OTCBB issuers have been subject to SEC reporting requirements including quarterly and annual financial information, as well as other company information. Filings made with the SEC pursuant to Section 13 or Section 15(d) of the Securities Exchange Act are available to the public through EDGAR, the SEC's on-line database of company filings.
Features
The OTCBB:
- provides access to more than 3,300 securities;
- includes more than 230 participating Market Makers;
- electronically transmits real-time quote, price, and volume information in domestic securities, foreign securities and ADRs; and
- displays indications of interest and prior-day trading activity in DPPs.
Eligibility
A member shall be permitted to quote securities on the OTCBB by satisfying any one of the four requirements below:
1. the issuer is listed on one or more regional stock exchanges, and does not qualify for dissemination of transaction reports via the facilities of the Consolidated Tape; or
2. the issuer of the security is required to file reports pursuant to Section 13 or 15(d) of the Exchange Act or the security is described in Section 12(g)(2)(B) of the Exchange Act, and, subject to a thirty calendar day grace period, the issuer of the security is current in its reporting obligations, or
3. the security is described in Section 12(g)(2)(G) of the Exchange Act and, subject to a sixty calendar day grace period, the issuer of the security is current in its reporting obligations, or
4. the issuer of the security is a bank or savings association (or a holding company for such an entity) that is not required to file reports with the SEC pursuant to Section 13 or 15(d) of the Exchange Act and, subject to a sixty calendar day grace period, the issuer of the security is current with all required filings with its appropriate Federal banking agency or State bank supervisor (as defined in 12 U.S.C. 1813).
History
In June 1990, the OTCBB began operation, on a pilot basis, as part of important market structure reforms to provide transparency in the OTC equities market. The Penny Stock Reform Act of 1990 mandated the SEC to establish an electronic system that met the requirements of Section 17B of the Exchange Act. The system was designed to facilitate the widespread publication of quotation and last-sale information. Since December 1993, firms have been required to report trades in all domestic OTC equity securities through the Automated Confirmation Transaction Service within 90 seconds of the transaction.
In April 1997, the SEC approved the operation of the OTCBB on a permanent basis with some modifications, and in May 1997, DPPs became eligible for quotation on the OTCBB. In April 1998, all foreign securities and ADRs that are fully registered with the SEC became eligible for the display of real-time quotes, last-sale prices, and volume information on the OTCBB.
On January 4, 1999, the SEC approved the OTCBB Eligibility Rule. Securities not quoted on the OTCBB as of that date will be required to report their current financial information to the SEC, banking, or insurance regulators in order to meet eligibility requirements. Non-reporting companies whose securities were already quoted on the OTCBB will be granted a grace period to comply with the new requirements. Those companies will be phased in beginning in July 1999 and by June 2000, current financial information about all domestic companies that are quoted on the OTCBB will be publicly available.
Investor Protection
It is important to note that FINRA has no regulatory authority over OTC Bulletin Board issuers. FINRA's responsibilities include establishing rules governing its broker-dealers members' business conduct; setting qualification standards for securities industry professionals; examining members for their financial and operational condition as well as their compliance with appropriate rules and regulations; investigating alleged violations of securities laws; disciplining violators of applicable rules and regulations; and responding to inquiries and complaints from investors and members.
Due to the high level of risk involved in investing in Penny Stocks, the SEC created Rule 15g-2, which makes it "unlawful for a broker or dealer to effect a transaction in any penny stock for or with the account of a customer unless, prior to effecting such transaction, the broker or dealer has furnished to the customer a document containing the information set forth in Schedule 15G, Rule 15g-100, and has obtained from the customer a manually signed and dated written acknowledgement of receipt of the document."
