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 10,000 OTC securities, making it the third-largest U.S. equity trading forum.
The company also provides services in three core areas that are essential for better-informed and more efficient financial markets. The fields are Issuer Services, Trading Services, and Market Data Services.
OTC Markets Group formed in 1997 when a group of investors acquired its predecessor business, the National Quotation Bureau. In 2003, the company launched the electronic platform for OTC securities that later became OTC Link.
BREAKING DOWN 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.
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 companies’ information and disclosure. This division 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.
OTC Markets Group Tier Structure
- OTCQX is the top tier of the three marketplaces for the over-the-counter 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 annual verification and 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 to trade in a wide range of equities through any broker 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.”