OTC Bulletin Board

The Over-the-Counter Bulletin Board (OTCBB) is a regulated quotation system in the United States that displays real-time quotes for securities not listed on a national exchange. It is operated by the Financial Industry Regulatory Authority (FINRA) for its subscribing members. FINRA closed OCTBB on November 8th, 2021. Read on to find out about the history, services, and dissolution. 

Overview

Overview OTC Bulletin Board

Foundation Year: 1990
Operated by: Financial Industry Regulatory Authority (FINRA)
Industry: Financial Services
Services: Quotation Services for OTC Trade Data for US Stock
Year of Cessation: 2021

Foundation

The origins of the Over-the-Counter Bulletin Board (OTCBB) date back to the early days of NASDAQ when the National Association of Securities Dealers (NASD) first started trading securities electronically. At that time, there was no centralized exchange for these securities, so they were traded over the counter (OTC). This system worked well for a while, but as NASDAQ grew, it became increasingly difficult for investors to find information about OTC securities.

The OTCBB was created in 1990 as an alternative to trading securities on the NASDAQ stock market. Unlike the NASDAQ, which requires companies to meet specific financial requirements to be listed, the OTCBB only requires that companies file periodic reports with the SEC. As a result, many penny stocks and other low-priced securities trade on the OTCBB.

It was similar to a stock exchange but not as formal or regulated. The OTCBB provided an electronic quotation system that displayed real-time quotations, last-sale prices, and volume information for many over-the-counter (OTC) equity securities. All quotation and last sale information for OTCBB securities will now be disseminated through the FINRA/Nasdaq Trade Reporting Facility (TRF).

Difference Between OTC Bulletin Board and a Stock Exchange

So what is the difference between the OTCBB and a stock exchange? The OTC Bulletin Board is not a stock exchange and is not as formal as a stock exchange.

The OTCBB is different from stock exchanges in several ways.

  • First, it is an electronic quotation service rather than a physical exchange.
  • Second, companies quoted on the OTCBB are not required to meet the same listing requirements as companies listed on stock exchanges. Finally, the OTCBB is not as heavily regulated as stock exchanges.

The OTCBB offers several benefits to investors.

  • First, it provides real-time quotes and last-sale prices for OTC equity securities. This information can be useful for investor decision-making.
  • Second, the OTCBB offers volume information in OTC equity securities. This information can help gauge market interest in a particular security. Finally, the OTCBBis a regulated quotation service. This means that companies quoted on the OTCBB are subject to specific regulations, such as the requirement to be current in their regulatory filings with the SEC.

Despite these benefits, some risks are associated with investing in OTCBB-quoted securities.

  • First, because the OTCBB is not as heavily regulated as stock exchanges, there may be more opportunities for fraud or misrepresentation.
  • Second, the OTCBB is an electronic quotation service, which means there is a risk of system outages or delays. Finally, companies quoted on the OTCBB may be less well known and therefore may be more volatile and risky than companies listed on stock exchanges.

OTCBB Services

The OTCBB is a real-time electronic quotation system that displays bid and ask quotations for thousands of OTC securities. It is not a stock exchange and does not have lists of stocks that trade on it. Instead, the OTCBB is a quotation system that provides market makers with an efficient way to quote prices for their customers.

Market makers are broker-dealers who buy and sell securities for their accounts in the OTC market. To be able to quote prices on the OTCBB, a market maker must be registered with both the NASD and the SEC.

The Idea Behind OTCBB

Investor financing is required for a company's growth, which may be obtained by raising funds from investors. However, because small businesses may not satisfy the listing standards to trade their securities on national exchanges, the OTC market steps in to assist them. They still had to submit the necessary SEC paperwork.

Dissolution of OTCBB

The OTC Bulletin Board (OTCBB) was once a popular destination for small and medium-sized businesses to raise capital by issuing and trading securities. However, in 2020, FINRA filed a rule change with the US Securities and Exchange Commission (SEC) that outlined its proposal to cease the operations of the OTCBB. This proposal became effective in 2021, causing the dissolution of the OTCBB.

The main reason for the closure of the OTCBB was its lack of efficiency. The OTCBB was often criticized for its slow trading speeds and outdated technology. The high costs associated with using the OTCBB made it difficult for small businesses to raise capital.

Overall, the closure of the OTCBB was met with mixed reactions. While some investors lamented the loss of a reliable trading platform, others welcomed FINRA's proposal as a step towards modernization and efficiency in the securities industry.

Despite their names, neither OCTBB nor OCT Markets Group are actual exchanges but quotation services.

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Ziga Breznik

Author

About the author

Ziga Breznik is the owner and head of research at PublicFinanceInternational.org – he is an active investor in the forex, crypto and stock markets – he has seen trading platforms disappear along with his investments – especially during the “crypto boom”. Ziga learned the hard way that finding a reputable and trustworthy online brokerage is key to long-term success in the financial markets. He founded PublicFinanceInternational.org as a platform where he shares his research with one goal in mind: to provide unbiased and trustworthy online brokers reviews.