Investor’s Guide to OTC Markets

What are the OTC markets? And how can investors access them? Shares traded on the OTC markets follow a unique process. OTC, short for “over-the-counter”, represents stocks not listed on major centralized exchanges like the New York Stock Exchange (NYSE) or the Toronto Stock Exchange (TSX). Instead, OTC trading occurs directly between parties, facilitated through a network of broker-dealers, without a central exchange.

• Decentralized Trading: Instead of a centralized marketplace, these stocks are bought and sold through a decentralized network.
• Cost-Effective: OTC stocks are typically cheaper in price compared to those listed on traditional exchanges.

OTC markets cater to a diverse range of companies, from startups to established businesses that have opted for OTC listing for specific reasons. Here’s why certain stocks might end up on OTC markets:

• Startups and Emerging Companies: Many companies that are just starting out may not meet the volume or financial requirements of traditional stock exchanges. OTC markets offer them an avenue to raise capital without the restrictions of major exchanges.
• Cost-Effective Listings: Being listed on major stock exchanges can be an expensive endeavor. To save money, some companies choose to list their stocks OTC.
• Delisting from Major Exchanges: There are instances where companies previously listed on major exchanges shift to OTC markets. Here are some reasons for such a move:
• Going Private: A business may decide to retract its public status and go private, leading to its delisting. However, its stock may still trade OTC.
• Selective Delisting: If a company chooses to delist certain classes of its stock but not all, the delisted stocks might continue trading over-the-counter.
• Regulatory Actions: In some situations, a company might be forced off an exchange. This could be due to non-compliance with exchange rules or regulations set by governing bodies like the US Securities and Exchange Commission (SEC). In such cases, the stocks may find a home in OTC markets.

Trading OTC stocks can offer unique opportunities, but potential investors should also be aware of the risks associated with less regulation and transparency. As with any investment, thorough research and due diligence are crucial.

OTC stocks are traded on one of three exchanges owned by the OTC Market Group. These markets exist in the US and are regulated by the SEC. Canada, on the other hand, does not have an OTC market.

OTCQX:

• Referred to as the “best market”.
• Has strict listing standards, excluding penny stocks.
• Hosts many blue-chip companies from regions like Canada, Europe, Brazil, and Russia. An example is Heineken N.V. (HINKF).
• OTCQX replaced the OTCBB (Over The Counter Bulletin Board) as the primary OTC trading market in November 2021. The OTCBB no longer operates.

OTCQB:

• Termed as the “venture market”.
• Sits between OTCQX and OTC Pink in terms of standards.
• Penny stocks can be listed.
• Typically includes growing global companies.

OTC Pink:

• Known as the “open market”.
• Designed for stocks that don’t qualify for the other two markets.
• Riskiest due to lack of stringent requirements; no mandatory company disclosure for listing.
• Serves as a default market.

OTC Stock Lists:

• Over 12,000 different stocks are listed in the OTC markets.
• Despite lesser media attention than stocks on exchanges like TSX, many legitimate and large companies are found on OTC markets.
• Some companies choose OTC markets to sidestep SEC regulations or due to delisting from larger exchanges. Others, despite being large, opt for OTC listings over other prominent exchanges.

Companies featured on Global One Media’s channel that are listed on the OTC markets:

Below are some brokers that enable their clients to trade OTC stocks.

1. Interactive Brokers: This online brokerage offers the option to trade OTC stocks.
2. Questrade: A versatile, self-managed online trading platform.
3. CIBC Investor’s Edge: This platform does not support online trades of OTC stocks.
4. Scotiabank: Allows trading of OTC stocks in addition to transactions on official markets.

The OTC markets are a good option for companies and investors to enable both to achieve their objectives. Companies can raise needed funds for their projects, and investors can gain access to promising enterprises with high growth potential. It is important to define your objectives and manage risk very proactively before making investment decisions that will impact your portfolio. Global One Media offers you usually the needed information to help you make those decisions. It is also crucial that you use a trusted broker to ensure safety, security, and good performance.