DEFINITION of 'OTCQB'
The venture stage marketplace for smaller or early-stage companies that report to a U.S. regulator such as the SEC or FDIC. The OTCQB is the middle tier of the three marketplaces for trading over-the-counter stocks provided and operated by the OTC Markets Group. The OTCQB has replaced the Financial Industry Regulatory Authority (FINRA)-operated OTC Bulletin Board (OTCBB) as the main market for trading OTC securities that report to a U.S. regulator. As it has no minimum financial standards, the OTCQB includes shell companies, penny stocks and small foreign issuers.
BREAKING DOWN 'OTCQB'
Most broker-dealers electronically quote prices for securities of SEC-reporting companies on the OTCQB marketplace through OTC Link, an inter-dealer quotation and trading system developed by OTC Markets Group. OTC Link is registered with the SEC as a broker-dealer and also as an alternative trading system (ATS). OTC Link enables broker-dealers not only to post and disseminate their quotes, but also negotiate trades through the system’s electronic messaging capability. This feature enabled it to effectively replace FINRA’s OTCBB, which was a quotation-only system.
All broker-dealers that trade OTCQB, OTCQX and OTC Pink securities have to be FINRA members and registered with the SEC; they are also subject to state securities regulations.
As with exchange-traded securities, investors trading OTC securities are protected from an unethical broker-dealer’s illegal practices by the same SEC / FINRA rules such as Best Execution, Limit Order Protection, Firm Quotes, and Short Position Disclosure.