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Top Three Things You Need To Know About The OTC Marketplace

Whether you're a fast-fingered day trader or a long-hold Joe, if you play the markets you're a risk taker. You've found what works, what doesn't; polished your due diligence process to determine who to follow, who to run from; and have discovered the high potential niche markets in the OTC realm. But when it comes to the ever changing OTCBB landscape, are you keeping the pace or do you still have a few lingering questions?

We've compiled a handful of some of the most important topics regarding the OTC marketplace.

What happened to ".OB" and ".PK"?

The ticker extensions ".OB" and ".PK" were originally tacked onto the end of ticker symbols as an identifier of securities quoted on the OTC Bulletin Board and Pinksheets. As you may have noticed, however, the handy little flags are no more. The majority of Web sites, including Yahoo Finance and Google, no longer recognize these ticker extensions as they are not part of the security symbols formally issued by the Financial Industry Regulatory Authority (FINRA).

Why are big-name financial sites inconsistent with the OTC market data and marketplace designation they provide?

Because the majority of financial Web sites receive data from various sources, often time the data displayed is outdated or flat-out incorrect. Yahoo and Google both display delayed last sale and trade data for most publicly traded companies, though bid and ask price quotes are reserved only for companies listed on NASDAQ or NYSE.

If you're looking for real-time best bid and ask prices and correct marketplace designation for OTCQX, OTCQB, and OTC Pink companies, is your honey hole. It's important to note that while trading no longer occurs on the OTCBB, due to systemic coding, a company may be labeled incorrectly as OTCBB if an unpriced quote still remains on the OTCBB.

Level 2 Quotes refer to all broker-dealer bid/ask quote prices and size in a security and provide transparency for the company by displaying a full list of active market makers vs. incomplete or no pricing on the OTCBB. Companies can sponsor Real-time Level 2 Quotes for all investors to view on their quote page as well as on their own corporate Investor Relations page. Here's where you benefit trading OTC: while traditional stock exchanges charge investors a fee to access Level 2 Quote data, OTCQB companies can make this information widely available at no additional charge to investors.

Speaking of … what exactly does OTCQX, OTCQB, OTCBB, and OTC Pink mean and where did they come from?

OTC Markets Group established separate marketplaces to provide clarity in the investment process. Per this model, OTC securities are categorized into three tiered marketplaces based on the quality and quantity of information the company provides to the public.

OTCQX is the top rank for OTC companies that want to differentiate themselves from riskier investments, shells, distressed, and speculative calls. Companies listed on this marketplace must meet certain financial standards and ongoing disclosure requirements. Inclusion to the OTCQX starts with the company submitting an application for eligibility followed by management background check and the appointment of an approved third-party attorney or investment bank as a sponsor.

Companies upgrade to OTCQX to validate the strength of their financials and reputation of their management teams, as well as to create greater recognition and credibility in the investment community.

For companies pursuing NYSE or NASDAQ listing but lacking the stricter exchange qualifications, OTCQX provides a suitable alternative for creating brand awareness and attracting investors.

The OTCQB marketplace replaces the FINRA-operated OTCBB. OTCQB is a venture-stage, broker-dealer driven marketplace for unlisted SEC and banking reporting securities that can prove they are current in their disclosures to their respective U.S. regulators. There are no minimal financial standards or business operation requirements for inclusion to the OTCQB, which means the marketplace also includes shells, penny stocks, and financially distressed companies.

OTC Pink is a broker-dealer driven marketplace and home to the wide array of equity securities that are not U.S. reporting. OTC Pink companies are further broken down into sub-tiers based on the level of information that they provide to the public.

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