posted on 06-06-2019

Over-the-Counter Market

Updated October 1, 2019

What is an Over-the-Counter Market?


The OTC market 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 Does an Over-the-Counter Market Work?

Nasdaq disseminates OTC 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 OTC market, 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 Does an Over-the-Counter Market Matter?

Small companies that may not meet the listing requirements for their securities to be listed on national exchanges might turn to the OTC market 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 OTC securities.