Small or new companies, or those that may
not meet listing requirements, are traded
over the counter
(OTC).
Today OTC trading takes place by telephone or computer,
but the term originated with the custom of buying stocks in your
broker’s office as you bought other products — from
a salesperson behind a counter.
OTC stock prices tend to be lower than the
prices of listed stocks, and they aren’t traded as regularly.
That might mean you could have a hard time selling an OTC stock,
especially if other investors were trying to sell their shares
at the same time. But some companies whose stock was traded initially
in the OTC market have gone on to become corporate powerhouses.
You can find current, real-time prices for
OTC stocks on the Pink Sheets’ Electronic Quotation Service
(www.pinksheets.com)
or the OTC Bulletin Board
(www.otcbb.com).
The Pink Sheets, which get their name from the pink newsprint
on which they were printed in the pre-electronic age, cover stocks
that aren’t registered with the
Securities
and Exchange Commission (SEC).
The Bulletin Board tracks
a slightly smaller number of companies that are registered with
the SEC.
Word games
You may hear all electronic transactions described as OTC trading. But the large, centralized electronic markets, such as the NASDAQ, have much more stringent listing requirements and are more tightly regulated than the more loosely organized networks of dealers trading outside such markets.
OTC stock prices tend to be lower than the
prices of listed stocks, and they aren’t traded as regularly.
That might mean you could have a hard time selling an OTC stock,
especially if other investors were trying to sell their shares
at the same time. But some companies whose stock was traded initially
in the OTC market have gone on to become corporate powerhouses.
