What Is the OTC Markets Group Inc.?
The OTC Markets Group is the owner and operator of the most substantial U.S. inter-dealer electronic quotation and trading system for over-the-counter (OTC) securities. It provides marketplaces for trading more than 10,000 OTC securities
The company provides services in three core areas that are essential for better-informed and more efficient financial markets. The fields are Trading Services, Market Data, and Corporate Services.
OTC Markets Group was preceded by the National Quotation Bureau which was founded in 1913. Prior to being called the OTC Markets Group Inc., the National Quotation Bureau renamed itself Pink Sheets LLC in 2000 and then Pink OTC Markets in 2008. The change to the OTC Markets Group name came in 2010.
- OTC Markets Group is the largest U.S. marketplace for OTC securities with over 10,500 securities listed as of 2019.
- OTC securities are listed in three tiers: OTCQX which has the most stringent listing requirements, the OTCQB which is the venture market, and the OTC Pink which includes companies in financial distress or bankruptcy.
- Of the three tiers, the OTC Pink is the largest in terms of the number of companies and trade volume.
Understanding the OTC Markets Group Inc.
The handling of most OTC securities trading in the U.S. is on the company’s OTC Link platform, an alternative trading system registered with the Securities and Exchange Commission (SEC) as a broker-dealer. OTC Markets Group has its headquarters in New York City and is publicly traded on the OTCQX marketplace under the symbol OTCM.
Through the Trading services division, OTC Markets Group connects broker-dealers together which provides the liquidity and infrastructure for executing trades on the OTC market.
The Market Data division provides data and quote services for the more than 10,000 OTC securities.
The Corporate Services division helps companies go public and gain greater visibility through listing in one of OTC Markets Group's three OTC tiers.
OTC Markets Group Tier Structure
The most visible aspect of the OTC Markets Group's stewardship is the breakdown of the OTC market into three tiers, based on the quality and quantity of the listed companies’ information and disclosures. This tiered structure provides different levels of transparency, so investors know what types of information they do and do not have for each company they wish to trade.
- OTCQX is the top tier of the three marketplaces for the OTC trading of stocks. Stocks that trade on this forum must meet more stringent qualification criteria compared to the other levels. Also called the OTCQX Best Market, it includes a large number of blue chips stocks from Europe, Canada, Brazil, and Russia. These large foreign stocks are frequently global household names. Penny stocks, shell companies, and companies in bankruptcy cannot qualify for a listing on the OTCQX.
- The middle tier is called OTCQB, also known as "The Venture Market," which consists of early-stage and developing U.S. and international companies that are not yet able to qualify for the OTCQX. The company must be current in their reporting, undergo an annual verification, management certification, meet a $0.01 bid test, and may not be in bankruptcy to meet eligibility standards. Companies listed here report to a U.S. regulator such as the SEC or Federal Deposit Insurance Corporation (FDIC). The OTCQB 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.
- OTC Pink, or Pink Sheets, is the lowest level and most speculative tier of the three marketplaces for the trading of over-the-counter stocks. This marketplace offers trading in a wide range of equities and includes companies in default or financial distress. Since it has no disclosure requirements, categorization of OTC Pink companies is from information provided by the company. OTC Markets somewhat euphemistically advertises OTC Pink as “The Open Marketplace with Variable Reporting Companies.”
OTC Markets Group Inc. Trading Statistics
With more than 10,600 securities listed by the OTC Markets Group as of May 2019, daily trading volume fluctuates. Dollar trade volume typically exceeds $1 billion per day, share volume will often reach five billion or higher, and the number of trades will often be north of 150,000. These stats are for all three tiers combined.
The OTC Pink is the largest tier in terms of the number of companies listed within it. It also typically accounts for about 70% of the daily trading volume mentioned above.