OTCQX Vs OTCQB Vs Pink: Understanding OTC Markets' Different Tiers
More than 10,000 U.S. and global equities, ranging from large international companies to community banks, trade on the over-the-counter market. The types of companies and industries vary greatly with so many securities.
Over the past 11 years, OTC Markets Group, operator of the over the counter equities markets, has organized this market into a tiered system based on the quality and timeliness of information a company has disclosed.
The goal of organizing by tiers, according to Jason Paltrowitz, Executive Vice President of Corporate Services at OTC Markets Group, was to help investors better understand the array of companies that trade here and the corresponding risks. And to provide a way for reputable U.S. and international companies to distinguish themselves by the quality of their disclosure and rigorous requirements.
“Adding structure helps investors better understand the market,” he said. “You can look at a OTCQX company like Roche and see that it is a transparent, financially sound company. That profile may be very different for a security traded on the Pink market, where flags help investors easily identify potentially higher risk. We’re focused on using data and disclosure to create a transparent, high-performing trading market where established companies can leverage a cost-effective, less burdensome alternative to a stock exchange listing.”
Here’s how that system works:
The OTCQX Market is the top tier, with the most stringent entry requirements. According to OTC Markets, companies trading on OTCQX must “meet high financial standards, follow best practice corporate governance, demonstrate compliance with U.S. securities laws, be current in their disclosure, and have a professional third-party sponsor introduction.”
More specifically, these companies must meet a reporting standard in terms of how they report financial information. They must also have a board of directors with at least two independent directors, an audit committee that conducts annual financial audits, have annual shareholders meetings and release annual financial reports 15 days prior to each meeting.
Companies that are penny stocks, shells, or are in bankruptcy are excluded from trading on this tier.
Over 400 companies trade on OTCQX, including Swiss pharmaceutical conglomerate Roche (OTCQX:RHHBF) (OTCQX:RHHBY) (OTCQX:RHHVF), the French global communications company Publicis Groupe S.A. (OTCQX:PUBGY) (OTCQX: PGPEF) and Grayscale’s Investment the Bitcoin Investment Trust (OTCQX:GBTC).
The middle tier of OTC Markets – OTCQB – is known as The Venture Market. Companies that trade on this tier are in their early stages, and therefore, may not be able to meet the financial or regulatory requirements required by the exchanges or OTCQX.
To be eligible for OTCQB, companies must be current in their financial reporting, undergo an annual verification and management certification process, and have a bid price of at least $0.01. They also cannot be in bankruptcy. Over 900 companies trade on the OTCQB Market.
The Pink Open Market provides brokers a platform for transparent trading in any security. The widest spectrum of companies trade on the Pink Market, including those that are bankrupt or not current in their disclosures with the SEC or their home country exchange.
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