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 over-the-counter bulletin board (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.

RELATED TERMS
  1. Interdealer Quotation System

    The exchange system comprised of the Nasdaq (National Association ...
  2. Form 211

    1. A form that must be completed by a market maker and filed ...
  3. Penny Stock

    A Penny Stock is an equity security that trades below $5. Penny ...
  4. OTCQB

    The OTCQB - The Venture Market - is the middle tier of the three ...
  5. Deep Market

    A deep market is a securities exchange where a large number of ...
  6. Equity Market

    An equity market is a market in which shares are issued and traded, ...
Related Articles
  1. Investing

    The Lowdown On Penny Stocks

    Think penny stocks will make you rich? If you don't understand the risks, you could end up penniless. Learn the potential traps you may fall into in penny stock investing.
  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

    How to Play Stocks in the Pink Market

    Stocks trading on the OTC Pink Open Market include many good companies waiting to be discovered. Find out how the OTC tiered companies into three markets.
  5. 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.
  6. Trading

    Penny Stocks Vs. Forex: Which Is Right for You?

    Learn more about penny stock trading and forex market trading, and why each investment class appeals to different types of investors.
  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. Managing Wealth

    Should You Buy US Penny Stocks Or Emerging Market Stocks?

    While in the same asset class, emerging market stocks and US penny stocks have significant differences that can impact your portfolio.
  9. Investing

    Ways To Indirectly Invest In Tesla’s Momentum

    Electric vehicle maker Tesla has been one of the best performing stocks of the last few years. However, some investors may be getting a bit nervous about its lofty share price. Luckily, there ...
  10. Tech

    Best Stocks to Buy for Less Than $5 (FCEL, MEET)

    Learn more about interesting small-cap stocks, selling for less than $5 per share, that investors may wish to consider adding to their portfolio.
RELATED FAQS
  1. What does it mean when a stock trades on the Pink Sheets or the OTCBB?

    Stocks of well-known companies trade on major exchanges but must be listed first. Unlisted companies trade on Pink Sheets ... Read Answer >>
  2. 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 >>
  3. What does it mean when a stock symbol has a .PK after it?

    The .PK is an example of a suffix representing where the security is traded - an over-the-counter (OTC) network or an international ... Read Answer >>
  4. Can you buy penny stocks in an IRA?

    Discover more about penny stocks, how they can be bought utilizing an individual retirement account and the risks penny stock ... Read Answer >>
Hot Definitions
  1. Economies of Scale

    Economies of scale refer to reduced costs per unit that arise from increased total output of a product. For example, a larger ...
  2. Quick Ratio

    The quick ratio measures a company’s ability to meet its short-term obligations with its most liquid assets.
  3. Leverage

    Leverage results from using borrowed capital as a source of funding when investing to expand the firm's asset base and generate ...
  4. Financial Risk

    Financial risk is the possibility that shareholders will lose money when investing in a company if its cash flow fails to ...
  5. Enterprise Value (EV)

    Enterprise Value (EV) is a measure of a company's total value, often used as a more comprehensive alternative to equity market ...
  6. Relative Strength Index - RSI

    Relative Strength Indicator (RSI) is a technical momentum indicator that compares the magnitude of recent gains to recent ...
Trading Center