TheStockAdvisor Advice

OTCBB

Most, if not all of you, know OTCBB means Over-The-Counter Bulletin Board. But what exactly is the OTCBB?

The OTC Bulletin Board® (OTCBB) is a regulated quotation service that displays real-time quotes, last-sale prices, and volume information in Over-The-Counter (OTC) equity securities. An OTC equity security generally is any equity that is not listed or traded on Nasdaq® or a national securities exchange. OTCBB securities include national, regional, and foreign equity issues, warrants, units, American Depositary Receipts (ADRs), and Direct Participation Programs (DPPs).

OTCBB Features:

  • provides access to more than 6,500 securities;
  • includes more than 400 participating Market Makers;
  • electronically transmits real-time quote, price, and volume information in domestic securities, foreign securities and ADRs; and
  • displays indications of interest and prior-day trading activity in DPPs.

Brokers who subscribe to the system can use the OTCBB to look up prices or enter quotes for OTC securities. Although the National Association of Securities Dealers, Inc. oversees the OTCBB, the OTCBB is not part of The Nasdaq Stock Market.

Comparison of Nasdaq and OTCBB:

The OTCBB is a quotation medium for subscribing members, not an issuer listing service, and should not be confused with The Nasdaq Stock Market. OTCBB securities are traded by a community of Market Makers that enter quotes and trade reports through a highly sophisticated, closed computer network, which is accessed through Nasdaq Workstation II™. The OTCBB is unlike The Nasdaq Stock Market in that it:

  • does not impose listing standards;
  • does not provide automated trade executions;
  • does not maintain relationships with quoted issuers
  • does not have the same obligations for Market Makers
  • does not have minimum quantitative listing requirements
  • does not have listing and maintenance fees to issuers

Like Nasdaq, OTCBB does have real-time electronic quotes for domestic issues and minimum listing processing time (3 days for OTCBB, 6 to 8 weeks for Nasdaq). Also, like Nasdaq, OTCBB has requirements to maintain quotation or listing. On January 4, 1999, the SEC approved the OTCBB Eligibility Rule. Securities not quoted on the OTCBB as of that date have been required to report their current financial information to the SEC, banking, or insurance regulators in order to meet eligibility requirements. Non-reporting companies whose securities were already quoted on the OTCBB were granted a grace period to comply with the new requirements. Since July 199 those companies began being phased in and as of June 22, 2000, current financial information about all domestic companies that are quoted on the OTCBB are now publicly available.

The OTCBB operates as a dealer system. As a result, all securities being quoted on the OTCBB must be sponsored by a participating Market Maker that registers the security by completing a Form 211 unless an exemption applies. Once cleared, Nasdaq Market Data Integrity will notify the Market Maker that it has been registered in the security and may enter a quote. Every OTC security not currently quoted on the OTCBB is considered "ineligible" until a Market Maker submits a Form 211 or a 15c2-11 Exemption Form. After clearance, the security is granted "eligible" status.

During the "eligible" period, a frequency-of-quotation test is administered. An OTCBB-eligible security that meets the frequency-of-quotation requirement for the so-called "piggyback" exception is identified in the service as "active." The frequency-of-quotation test or "piggyback" exception is based on whether a broker/dealer has itself published quotations in the security in the applicable interdealer quotation system on at least 12 business days during the preceding 30 calendar days, with not more than four consecutive business days without quotations. Once this criteria has been satisfied, authorized participants may register on-line in a security. As long as the security remains in an "active" state, any participant may quote the security without a Form 211 submission.

By the end of June 2000, all U.S. companies whose securities are quoted on the OTCBB had to file updated financial reports with the SEC or with their banking or insurance regulators. Companies failing to file reports will not be allowed to be quoted on the OTCBB. But they may be quoted in another system, such as the Pink Sheets, which are daily quotes of over-the-counter securities not listed on Nasdaq or a national securities exchange.

At the time the rules went into effect on January 4, 1999, only about half of the 6,500 companies on the OTCBB filed reports with the SEC. The new rules applied immediately to companies that first appeared on the OTCBB after January 4. For those companies that were on the OTCBB as of that date, the new rules have been phased-in over a twelve-month period beginning July 1, 1999.

If a company has not complied with SEC filing requirements thirty days before its scheduled phase-in date (or sixty days for banks and insurance companies not filing reports with the SEC), the National Association of Securities Dealers, Inc. will add the character "E" to the company's stock symbol. During these periods, the company can continue to trade, but it will be removed from the OTCBB if it has not met all filing requirements by its scheduled phase-in date.


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