The OTC Bulletin Board (OTCBB) proves to be a service for electronic trading that the NASD National Association of Securities Dealers maintains and provides to investors and dealers. It delivers live quotes on volume and pricing data to both investors and traders on stocks which trade OTC over the counter.
Every company which is listed on this backwater exchange has to be current in its filings of financial statements with regulatory oversight group the SEC Securities and Exchange Commission or some other applicable regulatory body. Other than this, there are no minimum listing requirements on the OTC Bulletin Board exchange; unlike with sister monster exchanges the NYSE New York Stock Exchange or the NASDAQ.
The OTCBB turns out to be a fairly young stock quoting system. It began in 1990 following the passage of the Penny Stock Reform Act of 1990. This legislation mandated that the SEC had to come up with some form of system for electronic quotes for those firms which were not able to qualify for listing on one of the rival major stock exchanges such as NYSE or NASDAQ. Those securities which trade on the over the counter basis does so between individuals who are utilizing either phones or computers to place trades. Every stock which trades on the OTCBB contains an “.OB” in its suffix.
It is important for potential investors in OTC Bulletin Board stocks to remember that this is not an extension of any major stock exchange. Instead, it is because these stocks are not well known, heavily traded, or largely capitalized that they are trading on the over the counter electronic quoting system basis in the first place.
These stocks are well known for their substantial risk and rampant instability and volatility. This is why the very few of the OTCBB stocks which enjoy great success eventually migrate over to the NASDAQ or even NYSE once they are able to meet the strict listing requirements of the relevant larger exchanges. The bid-ask spreads on OTCBB are commonly much higher since the volume is so much less.
OTC Bulletin Board serves a critically important role and fills a much-needed vacuum with its existence and services. In truth there are many individual tiny companies which will never qualify for the stronger listing requirements so that their issues are allowed to trade on the major national stock exchanges.
The OTCBB gives them another avenue to float stock shares to a national investor audience so that they can obtain significant capital for their expansion needs. As long as investors recall that this is not a true exchange in any practical sense of the word, but merely an electronic quotation system, then investors will go into a potentially severely loss-making investment scenario with their eyes wide open. These securities which trade through the OTC Bulletin Board are actually a bunch of shares that exist in a tangled web of market makers who are trading them using the various quotes the system provides on a secure network computer which is only accessible by pay to play subscribers.
Another form of exchange network trading is via the so-called Pink Sheets. There are some parallels between the two systems. They are not at all related in fact though. Pink Sheets is an individually and privately held company which offers its own proprietary system of quotations. Companies whose securities trade as part of the Pink Sheets are not required to file any financials with the SEC. They also do not have to make any certain minimum docs available to members of the public or investing community at large. This is why some smaller firms prefer the simplicity and anonymity provided by the Pink Sheets operations and service.