The over-the-counter bulletin board (OTCBB) was an electronic quotation service provided by the Financial Industry Regulatory Authority (FINRA) to its subscribing members for over-the-counter (OTC) trade data for U.S. stocks. Unlike other OTC platforms, OTCBB was a quotation-only service. In 2020, FINRA announced it was winding down the OTCBB, as the bulk of OTC stock trading occurred on OTC Markets Group’s platforms. FINRA officially ceased operations of the OTCBB on Nov. 8, 2021.
Key Insights
- The over-the-counter bulletin board (OTCBB) was a regulated quotation service for OTC securities provided by the Financial Industry Regulatory Authority (FINRA).
- It offered up-to-the-minute quotes, last-sale prices, and volume information.
- All companies listed on the platform had to file current financial statements with the Securities and Exchange Commission (SEC) or another relevant federal regulator.
- Only a select few OTCBB stocks successfully moved from the OTC market to a major exchange.
- In 2020, FINRA decided to wind down the OTCBB services, as the platforms provided by OTC Markets Group had taken the lion’s share of U.S. OTC stock trading and data.
Understanding the Over-the-Counter Bulletin Board (OTCBB)
The OTCBB offered traders and investors up-to-the-minute quotes, last-sale prices, and volume information for equity securities traded OTC. All companies listed on this platform had to file current financial statements with the SEC or another federal regulator.
The OTCBB was created in 1990 after the Penny Stock Reform Act of 1990 mandated that the SEC develop an electronic quotation system for stocks that could not be listed on one of the major exchanges. Stocks traded OTC were traded between individuals and market makers using computers and telephones.
OTC stocks on the OTCBB were not part of any major exchanges. This was primarily because OTC stocks tend to be small and volatile, often making meeting listing requirements difficult.
More importantly, from a trading standpoint, the bid-ask spread is typically larger for these stocks as they generally trade with less frequency than exchange-listed stocks. Only a select few OTCBB stocks successfully transitioned from the OTC market to a major exchange.
Special Considerations
For those small companies that could not meet the listing requirements to trade their securities on national exchanges, the OTCBB, and the current offerings of OTC Markets Group, provided an important alternative. Small companies need financing from investors to grow, even though their total market value might never rival a mid-cap stock. Investors are attracted to the outsized returns that can occur on the OTC market as some of these firms find ongoing success and substantial profits.
While these companies use the OTC markets instead of one of the major exchanges, investors need to remember that the OTCBB and OTC Markets Group are not actual exchanges but rather quotation services. All securities traded OTC are, in fact, traded by a web of market makers who input different quotes and trades through a secure computer network accessible only by subscribers.
Phasing Out the Over-the-Counter Bulletin Board (OTCBB)
As mentioned, nearly all OTC stock quotes and trades are now conducted on OTC Markets Group’s platforms, including OTCQX, OTCQB, and the Pink Open Market. FINRA filed a rule change in 2020 with the SEC that outlined its proposal to cease the operations of the OTCBB, effective Nov. 8, 2021. OTCQB, in particular, effectively replaced the OTCBB as the main market for trading OTC securities that report to a U.S. regulator. With no minimum financial standards, the OTCQB often includes shell companies, penny stocks, and small foreign issuers.
OTCBB vs. Pink Sheets
The OTCBB and Pink Sheets are both quotation services for stocks that trade OTC. The OTCBB was operated by FINRA, while the Pink Sheets are operated by a private company. The listing standards are generally laxer for the Pink Sheets, meaning some Pink Sheet stocks might not have been eligible for listing on the OTCBB.
Stocks listed on the OTCBB usually registered with the SEC (except for those not legally required to do so). Meanwhile, stocks on the Pink Sheets might not file regular reports or list with the SEC. Beyond the OTCBB and Pink Sheets, there are other quotation services. It’s also possible to buy stocks not listed on either directly from a broker. The lack of filing requirements for Pink Sheets stocks makes them inherently risker.
Frequently Asked Questions
How Did You Trade in OTCBB Penny Stocks?
Penny stocks generally didn’t trade on the OTCBB. Penny stocks, which trade for less than $1 per share, are traded through a brokerage. The OTCBB helped track prices for penny stocks but did not facilitate penny stock trading.
Which App Allowed You to Trade on the OTCBB?
No app allowed direct trading on the OTCBB, as it was a price-quoting service. Investors traded stocks via brokerage apps that quoted prices on the OTCBB.
Were OTC Stocks Publically Traded?
OTC stocks were traded without a centralized broker or exchange since they were generally too small to be listed on a formal exchange. Some OTC stocks were considered publicly traded, although there were private companies in the OTC market.
What Was Listed on the OTCBB?
Securities listed on the OTCBB included equities traded on the OTC market, such as stocks, warrants, units, and American Depositary Receipts (ADRs).
Is It Safe to Buy OTC Stocks?
There are two key risks to trading OTC stocks: poor liquidity resulting from less frequent trading, and a lack of reliable information about the companies. Buyers should be cautious and thoroughly review all available data before investing.
Can I Buy OTC Stocks on RobinHood?
Currently, OTC stocks are not available on RobinHood, although the trading app does allow trading of certain penny stocks.
Related Terms: quotation service, OTC Stocks, Penny Stocks, OTCQX, OTCQB, Pink Sheets.
References
- U.S. Securities and Exchange Commission. “Release No. 34-90067; File No. SR-FINRA-2020-031”.
- Financial Industry Regulatory Authority. “FINRA Announces Closure of the OTC Bulletin Board”.
- U.S. Congress. “S.647 - Securities Enforcement Remedies and Penny Stock Reform Act of 1990”, Page 25.
- International Monetary Fund. “Markets: Exchange or Over The Counter”.
