A:

The over-the-counter bulletin board (OTCBB) is a regulated quotation service for over-the-counter (OTC) securities. The securities that are listed on the board are not ones that are traded on the Nasdaq or any other securities exchange; therefore, a company is not "listed" on the board, just quoted.

Although companies must adhere to certain listing standards in order to maintain their listing on the major exchanges, companies issuing OTC securities do not have to meet these standards. The only stipulation the OTCBB has identified is that any company that has an OTC security quoted on the board must not be delinquent in its filings to the Securities and Exchange Commission.

Trading done on OTC securities is very similar to that done on any other exchange. An investor must first open an account with a broker who puts in buy and sell orders on different OTC securities. Market makers then ensure that the trades go through at the quoted price and volume.

Before a company can post a quote for its OTC security, it must first recruit a market maker to sponsor the issue. Only market makers are allowed to apply to have a quote listed on the board and only one market maker is needed per security issued. Because the securities are technically not listed on the OTCBB, the issuing company does not have to pay any fees to have its shares quoted. Market makers, however, must pay a fee of $6 per security per month for all of the securities that they quote on the board.

Under National Association of Securities Dealers rules, market makers are not eligible to receive any payment for issuing shares of the companies they sponsor. Instead, market makers make money on the spread between the bid and ask price that they quote on the board.

To learn more, see Why The Bid-Ask Spread Is So Important, Markets Demystified and Getting To Know Stock Exchanges.

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