The OTC bulletin board is a central electronic platform for providing identifying information on smaller U.S. stocks that are not able to meet the requirements for trading on large national exchanges like the NYSE and NASDAQ. Stocks that are not traded in major exchanges are said to be traded “over the counter.” Many of these companies are small, less established companies with low prices and low volume stock.
Since the small and relatively untested stocks usually found on the OTC bulletin board do not participate in the major exchanges, investors need some way to view their past performance and other key data. An agency known as the National Association of Securities Dealers stepped up to produce the OTC bulletin board, which shows price quotes, price history, volume and more for an OTC stock, which are often called “micro cap stocks” or “penny stocks.” Pros identify a micro cap stock as a stock where the total outstanding shares are beneath a certain volume, where a penny stock is commonly known as a stock where the share price is below one dollar.
Financial experts advise others to be careful trading in trading OTC and using the OTC bulletin board. The smaller off-exchange stocks are not subject to all of the requirements for exchange traded stocks, making investment riskier. The reason that many OTC stocks do not trade on the major exchanges is that they may not be able to meet certain listing requirements. Contrary to what it might sound like, the listing requirements are not record-keeping or clarity requirements, but rather, requirements like standards for the size of a company or the liquidity of the stock, items that can only be met with continued growth.
It’s important to note that OTC stocks are not without financial disclosure requirements. For example, companies on the OTC bulletin board are required to provide current financial statements to regulators. The U.S. Securities and Exchange Commission or SEC oversees parts of the regulatory process for OTC stocks as well as exchange traded equities.
Aside from the OTC bulletin board, another way of tracking smaller OTC stocks involves looking at what financial insiders called pink sheets. Originally, pricing information for the stocks was found on pink colored paper. Although electronic brokerage services and other technology has replaced a lot of paper-based trading, individuals might still be able to identify OTC stocks as “pink” through ticker symbol suffixes still used to differentiate exchange traded stocks from those that trade off-exchange.