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Over-the-counter Markets (OTC Markets)

The shares of publicly traded companies that are not listed on a stock exchange may still be traded on an OTC market. An over-the-counter stock market is a network of brokers and dealers that trade stocks and bonds that are not listed on an Exchange. Sometimes companies prefer to be listed on an OTC market instead of listing on a stock exchange. There are some of the reasons why:

  • unwillingness to abide by the information disclosure rules of an exchange
  • low volume of share trading
  • low investor interest
  • inability to meet the listing requirements of an exchange

The OTC market ha s role to play in the primary market. Many new stock issues are sold over-the-counter initially. Large block of outstanding shares offered for a sale by a single investor, whether listed on an exchange or not, are sometimes sold in the OTC stock market.

The disclosure standards for the OTC market are not as stringent as those imposed by a stock exchange. Corporation whose shares are listed on an exchange are generally not allowed to list or trade on the OTC market and vise versa.

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