Investing Answers Building and Protecting Your Wealth through Education Publisher of The Next Banks That Could Fail
Investing Answers Building and Protecting Your Wealth through Education Publisher of The Next Banks That Could Fail

Over the Counter Bulletin Board (OTCBB)

What it is:

The Over the Counter Bulletin Board (OTCBB) is a quotation service offered by the National Association of Securities Dealers (NASD) that provides quote and volume information for securities traded over the counter (that is, securities not listed on the Nasdaq, NYSE, AMEX, or other exchanges).

The OTCBB began operating in June 1990, after the Penny Stock Reform Act of 1990 required the SEC to establish an electronic quotation system for those stocks.
 

How it works (Example):

Nasdaq disseminates OTCBB information to market data vendor terminals and websites to subscribing customers. Among other things, the information contains high, low, and closing prices and volumes, inside quotes for certain securities, and telephone numbers for market makers of particular securities.

In order for an issuer to post a quote for its OTC security, it must first find a market maker to sponsor the issue. Stocks quoted by the OTCBB have the ticker suffix "OB." Issuers do not pay a fee to have their securities quoted on the OTCBB because it is not an actual exchange.

More than 200 market makers participate in the OTCBB, and thousands of securities are accessed there. The issuers of the securities quoted in the OTCBB must make periodic filing requirements to the SEC and other regulators that somewhat vary from traditionally required filings.

Why it Matters:

Small companies that may not meet the listing requirements for their securities to be listed on national exchanges might turn to the OTCBB as an alternative. However, because these companies do not meet listing requirements, they are often considered riskier stocks and are less actively traded than stocks listed on national exchanges. Thus, the bid/ask spread is often larger for OTCBB securities.

It is important to note that the OTCBB is not a trading platform or exchange; it is a quotation service. Rather, OTCBB securities are traded by a network of market makers who enter quotes and trades through a closed computer network that can be accessed by subscribers. The OTCBB does not impose listing standards or execute trades.

It is also important to note that the OTCBB is not the same as the Pink Sheets, which is a separate, privately owned company with its won quotations service.