What Is the Over-The-Counter Bulletin Board (OTCBB)?
The over-the-counter bulletin board (OTCBB) is an electronic quotation service provided by the Financial Industry Regulatory Authority (FINRA) to its subscribing members that offers over-the-counter (OTC) trade data for U.S. stocks. Unlike other OTC platforms, OTCBB is a quotation-only service.
In 2020, FINRA announced it would be winding down the OTCBB, as the bulk of OTC stock trading now occurs on OTC Markets Group's platforms.
- The over-the-counter bulletin board (OTCBB) is a regulated quotation service for over-the-counter (OTC) securities provided by the Financial Industry Regulatory Authority (FINRA).
- It offers up-to-the-minute quotes, last-sale prices, and volume information.
- In 2020, FINRA decided to wind down the OTCBB services, as the platforms provided by OTC Markets Group have taken the lion's share of U.S. OTC stock trading and data.
Understanding the Over-The-Counter Bulletin Board (OTCBB)
The OTCBB offers traders and investors up-to-the-minute quotes, last-sale prices, and volume information for equity securities traded OTC. All companies listed on this platform have to file current financial statements with the Securities and Exchange Commission (SEC) or another relevant federal regulator.
The OTCBB was created 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 traded OTC were traded between individuals and market makers using computers and telephones.
As is the case today, OTC stocks on the OTCBB are not part of any major exchanges. This is primarily because OTC stocks tend to be small and volatile, which makes meeting listing requirements difficult.
More importantly from the trading standpoint, the bid-ask spread is typically larger for these stocks as they typically trade with less frequency than exchange-listed stocks. Only a select few OTCBB stocks successfully moved from the OTC market to a major exchange.
The Importance of the Over-The-Counter Bulletin Board (OTCBB) and OTC Markets
For those small companies that cannot meet the listing requirements to trade their securities on national exchanges, the OTCBB, and nowadays the current offerings of OTC Markets, are an important alternative. Small companies need financing from investors to grow, even though their total market value might never rival a mid-cap stock. Investors, in turn, are attracted to the outsized returns that can still occur on the OTC market as some of these firms do find ongoing success and outsized profits.
While these companies use the OTC markets in place of one of the major exchanges, it is important for investors to remember that the OTCBB and OTC Markets are not, in fact, an actual exchange but merely a quotation service. All securities traded OTC 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.
Phasing Out the Over-The-Counter Bulletin Board (OTCBB)
OTCBB still provides market information through FINRA's website, but it is now all but obsolescent. The OTCQB, in particular, effectively replaced the 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 often includes shell companies, penny stocks, and small foreign issuers.
FINRA filed a rule change in 2020 with the SEC that proposes and plans to cease the operations of the OTCBB altogether in the near future.
OTCBB vs. Pink Sheets
The pink sheets are a privately held company, while FINRA provided the OTCBB service. The other difference between the pink sheets and OTCBB is that there are stricter standards for OTCBB. OTCBB issuers have to register with the SEC or another relevant federal regulatory authority.