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.

Pink Sheets

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.

  1. Penny Stock

    A Penny Stock is an equity security that trades below $5. Penny ...
  2. Yellow Sheets

    A United States bulletin that provides updated bid and ask prices ...
  3. OTCQB

    The OTCQB - The Venture Market - is the middle tier of the three ...
  4. Over-The-Counter Market

    Over-the-counter (OTC) is a decentralized market where market ...
  5. Exchange

    An exchange is a marketplace in which securities, commodities, ...
  6. Common Stock

    A security that represents ownership in a corporation. Holders ...
Related Articles
  1. Investing

    The over-the-counter market: Introducing pink sheets

    Learn about pink sheets and how this electronic over-the-counter market trades stocks. Find out about the advantages and risks associated with pink sheets.
  2. Trading

    Use Caution Trading Pink Sheets Stocks

    Pink sheets stocks can increase portfolio returns by large magnitudes in a short time, but come with significant risks.
  3. Investing

    A Look At Primary And Secondary Markets

    Knowing how the primary and secondary markets work is key to understanding how stocks, bonds and other securities are traded.
  4. Investing

    The Dirt On Delisted Stocks

    Listed securities are "the cream of the crop." Find out how a firm can lose that status and why you should be wary.
  5. Investing

    Understanding Penny Stocks' Risks and Rewards

    Penny stocks can soar in a short period, but dabbling in them is a dangerous game. Here is a breakdown on the risks and rewards of penny stocks.
  6. Investing

    How to Invest in Penny Stocks (ADAT, ANAD)

    Is the lure of finding a diamond in the rough too strong to ignore? Then here's a guide to investing in penny stocks.
  7. Investing

    Why Do Penny Stocks Fail?

    Penny stocks are speculative and highly risky investments. Lack of government and stock exchange oversight and general information leaves penny stock investors open to sudden losses.
  8. Investing

    Penny Stocks Vs. Venture Capital: Which Carries the Highest Risk?

    Learn how the challenges of venture capital investing and buying penny stocks differ and which type of investment carries the most risk.
  9. Insights

    The NYSE and Nasdaq: How They Work

    Learn some of the important differences in the way these exchanges operate and the securities that trade on them.
  1. What are the steps to get a company listed on the OTCBB?

    The over-the-counter bulletin board (OTCBB) is a regulated quotation service for over-the-counter (OTC) securities. The securities ... Read Answer >>
  2. Will I lose my shares if a company is delisted?

    Learn about stock listing requirements and what happens to cause a company's stock to be delisted from a major exchange such ... Read Answer >>
  3. Why did my stock's ticker change?

    When a ticker symbol of a publicly traded company changes, it generally means one of a few things. Read Answer >>
  4. What are the SEC (Securities And Exchange Commission) rules about OTC (over-the-counter) ...

    Find out how the Securities and Exchange Commission and the Financial Industry Regulatory Authority regulate trades on the ... Read Answer >>
  5. Is there such a thing as a nano cap or micro cap index?

    While there are indexes that track micro cap stocks, there are few indexes tracking nano caps. Although definitions vary, ... Read Answer >>
Trading Center