What Is the OTCQX?
The OTCQX is the top tier of the three marketplaces for the over-the-counter (OTC) tradingof stocks. The OTCQX is provided and operated by the OTC Markets Group. Stocks that trade on this forum must meet more stringent qualification criteria compared to the other tiers, which are the OTCQB/OTCBB and the Pink Sheets.
Key Takeaway
- The OTCQX is the highest quality tier of OTC markets and offers trading in companies that are not listed on traditional exchanges.
- Companies listed on the OTCQX markets have to follow certain rules and criteria and are subject to SEC regulation. For example, they have to adhere to governance transparency and must not be penny stocks.
- The two lower-tier venues for OTC trading in the U.S. are the OTCQB (formerly the OTCBB) and the Pink Sheets.
Understanding OTCQX
The over-the-counter(OTC) market is a decentralized market where securities, not listed on major exchanges, are traded directly by a network ofdealers. Instead of providing an order matchmaking service as with the NYSE, these dealers carry inventories of securities to facilitate any buyor sell orders. Penny stocks, shell companies, and companies in bankruptcy cannot qualify for a listing on the OTCQX.
The OTCQX roster, also called the OTCQX Best Market, includes a large number of blue-chipstocks from Europe, Canada, Brazil, and Russia. These large foreign stocks are frequently global household names.
Regulation of OTCQX
Companies trading on the OTCQX must follow standards to improve transparency. The OTCQX excludes companies that are most likely to be associated with stock promoters and other shady operations.The OTCQXsets standardsthat a company must meet for inclusion. A company must meet high financial standards, be current in its disclosure, andhave sponsorship from a professional third-party advisor.Listed companies report to a U.S. regulator such as the Securities and Exchange Committee (SEC) or the Federal Deposit Insurance Corporation (FDIC).
The OTCQX marketplace is run by OTC Link, an electronic inter-dealer quotation and trading system developed by OTC Markets Group. OTC Link is registered with the SEC as a broker-dealer and also as an alternative trading system(ATS). OTC Link enables broker-dealers to not onlypost and disseminate their quotes, but to also negotiate trades through the system’s electronic messaging capability.This feature allows it to replace the Over-the-Counter Bulletin Board(OTCBB), which was a quotation-only system.
The OTCQX Marketplace provides some advantages to investors. It separates out the superior companies from the numerous OTC companies that arefinancially challenged, those involved in questionable activities, or both. It enables investors to participate in the growth of foreign blue chips. Investors may view real-time Level 2 quotes with detailed market data and market depth.
All broker-dealers that tradeOTCQX, OTCQB, and OTC Pink securities have to beFinancial Industry Regulatory Authority (FINRA) members. Further, they must register with the SEC and are subject to state securities regulations.
In this way, as with exchange-traded securities, investors trading OTC securities are protected from an unethical broker-dealer’s illegal practices by the same SEC andFINRA rules such as Best Execution, Limit Order Protection, Firm Quotes, and Short Position Disclosure.
OTCQX Tiers
The reason large and prestigious companies list on the OTCQXrather than on a major exchange, such as the NYSE, is mainly to avoid the high costs associated with listing shares. Another reason is to bypass the expenses incurred in meeting the stringent ongoing disclosure and legal requirements that come with maintaining their listings. In contrast, the application fee for international and U.S. companies that meet the OTCQX requirements is much smaller.
To be eligible for a listing on theOTCQXU.S. Premier TieraU.S. company must meet specific and additional requirements. Requirements include a minimum bid price of $1 for the preceding 90 business days and meeting the financial criteria for continued listing on the Nasdaq Capital Market.
The Premier Tier is designed to identify large, high-quality issuers that would qualify to list on a national stock exchange. The comparableOTCQX International Premier tier is for foreign companies that meet specific qualifications of the NYSE’s worldwide standards.
While stocks trading on the OTCQX have many of the same protections as more established, larger stocks, they are still considered to be speculative. There is also no guaranteethat any item trading here will be of higher quality than stocks trading on other over-the-counter tiers, or even another OTC marketplace. As such, traders would be well served to implement robust due diligence before committing their capital.
FAQs
The OTCQX excludes companies that are most likely to be associated with stock promoters and other shady operations. The OTCQX sets standards that a company must meet for inclusion. A company must meet high financial standards, be current in its disclosure, and have sponsorship from a professional third-party advisor.
What are the 3 tiers of OTC market? ›
The tiers give no indication of the investment merits of the company and should not be construed as a recommendation.
- OTCQX. This is considered the highest tier of OTC Markets' securities based on the amount of available information. ...
- OTCQB. ...
- Pink Market ("Pink Sheets") ...
- Grey Market.
Companies on the Expert Market provide the lowest level of disclosure compared to other OTC Market tiers. As a result, trading is limited to only eligible investors who meet the “qualified expert” criteria and not for retail investors.
What does OTC mean for stocks? ›
The over-the-counter market—commonly known as the OTC market—is where securities that aren't listed on the major exchanges are traded. Stocks and bonds that trade on the OTC market are typically from smaller companies that don't meet the requirements to be listed on a major exchange.
What is the difference between OTC and OTCQX? ›
OTC market trades for securities are transacted via a dealer network, not on a centralized exchange such as NYSE. OTCQX is the top tier of the three marketplaces for trading over-the-counter stocks provided and operated by the OTC Markets Group.
How do you become an OTC stock? ›
Before a company can post a quote for its OTC security, it must first recruit a market maker to sponsor the issue. Only market makers are allowed to apply to have a quote listed on the board, and only one market maker is needed per security issued.
What happens to my shares if stock gets delisted? ›
If an investor owns a stock, but that stock gets delisted, they still own the stock, but its value is likely to decline significantly. Mandatory delisting is usually viewed as a sign of financial distress and can sometimes signal a forthcoming bankruptcy, which tends to decimate a stock's value.
What is Level 2 OTC trading? ›
First introduced in 1983 as the Nasdaq Quotation Dissemination Service (NQDS), Level 2 is a subscription-based service that provides real-time access to the NASDAQ order book. It is intended to display market depth and momentum to traders and investors.
How many types of OTC are there? ›
Types of OTC derivatives
OTC derivatives are classified into four categories: forwards, swaps, options, and credit derivatives: Forwards: A forward contract acts like a financial handshake between two parties, outlining an agreement to buy or sell an asset at a set price and date in the future.
What is OTC Level 1? ›
OTC Markets Level 1+ means Information consisting of all bid and offer price information and aggregate size information (aggregated by size at each respective bid or offer price), security information and OTC Markets Trade Prices, for a security quoted in the Information, on a real-time basis, continuously updated from ...
The OTC Markets Level 1 data includes trades, Inside Quote (BBO) from the market makers within the OTC Link ATS, reference data and regulatory messages.
Who buys OTC stocks? ›
If you go with a real-world full-service brokerage, you can buy and sell OTC stocks. The broker will place the order with the market maker for the stock you want to buy or sell. Bid and ask quotes can be monitored constantly through the Over-the-Counter Bulletin Board (OTCBB).
How to tell if a stock is OTC? ›
Companies that are not listed on an exchange, like the New York Stock Exchange (NYSE), are traded OTC. Often, the company is too small to be publicly traded. Sometimes, the company can't afford the listing fee. But some of these small companies grow into large ones.
How risky are OTC stocks? ›
Is the OTC Market Safe? The OTC market is generally considered risky due to lenient reporting requirements and lower transparency associated with these securities. Many stocks that trade OTC have a lower share price and may be highly volatile.
What is the difference between OTC stocks and regular stocks? ›
The Bottom Line. Over-the-counter (OTC) markets allow investors to buy and sell securities that are not available on major stock exchanges. Instead of buying on a public exchange, transactions occur directly between a network of broker-dealers and market makers.
What is the difference between OTCQX and OTC Pink? ›
The OTC Markets Group is organized into three main marketplaces: OTCQX, OTCQB, and OTC Pink, each with different requirements. OTCQX has the most stringent standards, and OTC Pink has almost none. If a company meets the eligibility and disclosure requirements, it can move between the OTC marketplaces.
How much does it cost to list on OTCQX? ›
Fees. Upon application for quotation on the OTCQX, companies must pay an initial non-refundable fee of $5,000. In addition, companies must pay an annual nonrefundable fee of $15,000.
What are the requirements for Nasdaq Capital Market IPO? ›
Nasdaq Capital Market companies are required to meet a net income standard of at least $750,000, a minimum public float of 1,000,000 shares, at least 300 shareholders, and a share bid price of at least $4 (with certain exceptions).
What are the features of OTC options? ›
In OTC options, there is no exchange or clearinghouse involved between the buyer and seller, and so they are free to set strike prices and expirations based on mutually agreed terms. When options are traded through exchanges, there might be certain limitations or regulations on how the strike price is calculated.
