The over-the-counter market differs from the New York Stock Exchange.
Many securities, such as stocks, are bought and sold on the over-the-counter market, or OTC. This generally means that the stock is not traded through one of the major stock exchanges, such as the New York Stock Exchange, or NYSE. In investor terms, these stocks are "unlisted." They are traded by broker-dealers over the telephone and by computer. Although OTC stocks are considered more risky, many good companies are traded this way.
Buying and Selling Stocks
Stocks are traded in secondary markets.
Once securities such as stocks are issued, they usually trade in what are called "secondary markets." Most of the large companies in the United States are are bought and sold on one or more of the major stock exchanges. The best known are the NYSE, the American Stock Exchange, or AMEX, and NASDAQ.
Exchanges Have Requirements
A company must have a minimum number of shareholders to be listed.
Before a company's stock can be listed on an exchange, it must meet certain minimums. These include market value, income and revenue, shares outstanding, and a minimum number of shareholders.
OTC Market
Companies on the OTC avoid stock exchanges' listing requirements.
Thousands of companies' stocks are on the OTC market, most of them smaller firms that have recently gone public. The OTC market has no listing requirements. That makes it attractive to these smaller firms, as well as to some companies that could be listed on one of the exchanges but choose to avoid the extra fees and administrative costs.
OTC Bulletin Board
OTC companies must file reports with the SEC.
OTC equity securities are found on the OTC Bulletin Board, or OTCBB. These securities include stocks of U.S. and foreign companies. No fees are required to list on the OTCBB, nor do the companies have to file financial reports with NASDAQ or the Financial Industry Regulatory Authority. However, the companies must file with the U.S. Securities and Exchange Commission.
Pink Sheets
Penny stocks appear on the Pink Sheets.
Stocks that do not qualify for a listing on an exchange appear on what are called Pink Sheets. These stocks used to be listed on pink paper, but today most of the information about them is distributed electronically. Pink Sheet stocks are usually those of small companies. They are often called penny stocks.
Future
The stock buyer might get treated more fairly on the OTC market.
Many believe the future of the securities industry lies with the OTC, as information--not location on the floor of the NYSE--becomes more important. Others think the system is inherently more competitive because it allows several or many stock traders freedom to "make a market" in a stock, and then buy and sell it.
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