The way the OTC market is organized and persists can be confusing for novice investors. If you are interested in penny stock trading you need to be able to delineate the different parts of the OTC Market. It includes the NASDAQ National Market, the Pink OTC Markets and the Over-the-Counter Bulletin Board.
What Is the OTC Market?
The Over-the-Counter Securities Market involves the exchange of securities outside of the major stock exchanges like the NYSE, AMEX and for the most part outside of NASDAQ. Stocks exchanged in this market tend to be penny stocks — which have a lot of definitions but for now you can simply refer to them as highly speculative stocks with a value below $5 a share — and often do not fulfill the requirements of the major exchanges. These unfulfilled requirements can be anything from filing with the SEC (Securities and Exchange Commission) to meeting a minimum market capitalization or share value.
The first part of this market is the NASDAQ (National Association of Securities Dealers Automated Quotation) National Market (NNM). While this is an OTC securities market, you will not find penny stocks there.
The Pink Sheets
The real penny stock market as most understand it exists with Pink OTC Markets and the Over-the-Counter Bulletin Board. The Pink OTC Markets, informally referred to as the Pink Sheets, is a quotation service which facilitates trades among qualified brokers. There are several parts to Pink Sheets. The information service is called the Pink Sheets News Service. Pink Quotes provides data on stocks categorized in number of different ways. Stocks that fulfill Pink Sheet disclosure standards are listed on the OTCQX, with smaller stocks on the PrimeQX and larger stocks on the PremiereQX.
Penny stocks that don’t fulfill Pink Sheet requirements for the OTCQX are listed within three levels of disclosure: Current Information, No Information and Limited Information. One important note is that most stocks on the Pink Sheets don’t need to fulfill the same requirements as the major exchanges and don’t need to file with the SEC.
The Over-the-Counter Bulletin Board
The Over-the-Counter Bulletin Board (OTCBB) exists somewhere between the major exchanges and the Pink Sheets. It provides real-time quotations of securities which must file and remain current with the SEC, but these penny stocks are still highly speculative and don’t need to meet the same requirements as the real stock exchanges (like NASDAQ or the NYSE).
I hope this provides you with a clear view of the major avenues through the OTC Market. Be careful trading in this area as it is rampant with manipulation and fraud because these lower valued stocks will inevitably be more speculative.