What is the 'Over-The-Counter Bulletin Board - OTCBB'
The over-the-counter bulletin board (OTCBB) is an electronic trading service provided by the National Association of Securities Dealers (NASD) that offers traders and investors up-to-the-minute quotes, last-sale prices and volume information for equity securities traded over the counter (OTC). All companies listed on this exchange must file current financial statements with the Securities and Exchange Commission (SEC) or a regulator. Different from listings on the Nasdaq and New York Stock Exchange (NYSE), there are no listing requirements for companies listing stocks on the OTCBB.
BREAKING DOWN 'Over-The-Counter Bulletin Board - OTCBB'The OTCBB was started in 1990 after the Penny Stock Reform Act of 1990 stipulated that the SEC must develop some type of electronic quotation system for stocks that could not be listed on one of the major exchanges. Stocks that trade over the counter are traded between individuals using computers and telephones. All stocks trading on the OTCBB have an ".OB" suffix.
There is one major aspect that investors should keep in mind when investing and trading stocks on the OTCBB: it is not part of any major exchanges. This is primarily because OTCBB stocks are not generally notable in size and are known for instability and considerable risk. Because of this, a select few OTCBB stocks successfully move from the OTC market to NASDAQ or some other major exchange because they fail to meet the listing requirements, and the bid-ask spread is typically larger because stocks on this exchange tend to trade infrequently.
The Importance of the OTCBB
For those small companies that cannot meet the listing requirements to trade their securities on national exchanges, the OTCBB is an alternative. While these companies use the OTCBB in place of one of the major exchanges, it is important for investors to remember that the OTCBB is not, in fact, an actual exchange but merely a quotation service. All securities traded through the OTCBB are, in reality, traded by a web of market makers who input different quotes and trades through a secure computer network that can only be accessed by those who subscribe.
New investors and traders sometimes draw a parallel between the OTCBB and Pink Sheets. However, the two are entirely separate companies. Pink Sheets is a privately owned company that produces its own quotation service system. In addition, investors trading securities through Pink Sheets do not have to file with the SEC or file financial documents that are available to the public. Some small companies favor Pink Sheets because of the financial anonymity it offers.