Over-the-Counter Market

The over-the-counter market is the market for securities traded other than on a national securities exchange. There is no single OTC marketplace and no central order book. Instead, dealers publish the prices at which they will buy and sell a security in an interdealer quotation system, and trades are negotiated between dealers or between a dealer and its customer. The SEC's description, in the release adopting the 2020 amendments to its governing rule, is that Rule 15c2-11 "governs the publication of quotations for securities in a quotation medium other than a national securities exchange, i.e., over-the-counter ('OTC') securities."

Two neighboring pages own adjacent ground. The secondary market page places the OTC market alongside exchanges as one of the two kinds of venue where existing securities change hands; this page is about how the OTC market actually works and what governs it. The market maker page owns the dealers who stand ready to trade, including the statutory definition of an OTC market maker. What follows is the plumbing between them: how a quotation gets published, what has to be true about the company first, and where the stocks that fail that test end up.

The gate is information, and it sits on the dealer. Rule 15c2-11 makes it unlawful for a broker or dealer to publish a quotation for a security, or submit one for publication, in any quotation medium unless the dealer has in its records the documents and information the rule specifies (for an SEC reporting company, its most recent annual report and subsequent periodic and current reports; for others, a list of items about the business, its officers and its financial statements), that information is "current and publicly available," and the dealer, having reviewed it, has "a reasonable basis under the circumstances for believing" the information is accurate in all material respects and comes from reliable sources. "Publicly available" means posted on EDGAR, on a government or issuer website, or on the website of a qualified interdealer quotation system, FINRA or a registered broker-dealer, and expressly excludes anything behind a login or a fee. FINRA Rule 6432 adds the procedural step: no member may initiate or resume quoting a non-exchange-listed security until it has filed the required form with FINRA and received notice that the form has been processed. That filing is what the SEC's own investor materials call a Form 211. Since the 2020 amendments, a qualified interdealer quotation system may perform the review itself and publish a determination that the information is current and public, after which dealers may quote in reliance on it.

The piggyback exception, narrowed. Reviewing an issuer before every quote would be impractical for a security already trading, so paragraph (f)(3) of the rule lets a dealer quote a security that has been the subject of priced bid or offer quotations in an interdealer quotation system "with no more than four business days in succession without such a quotation." The 2020 amendments, effective December 28, 2020 with a compliance date nine months later, tied that exception to the same information test: it is available only while the issuer's specified information is current and publicly available, with a grace period for information that has gone stale. Two classes are carved out. A security that was the subject of an SEC trading suspension cannot be quoted under the exception until 60 calendar days after the suspension expires, and a dealer who has a reasonable basis to believe the issuer is a shell company can use the exception only within 18 months after the security's initial priced quotation. The rule's own definition of a shell company is an issuer with "no or nominal operations" and either no or nominal assets, assets consisting solely of cash and cash equivalents, or cash plus nominal other assets.

The systems where quotes appear. For decades the best-known venue was the OTC Bulletin Board, an interdealer quotation system FINRA itself operated. FINRA ceased operating the OTCBB on November 8, 2021 and deleted its rules, so SEC documents written before then that name the OTCBB describe a system that no longer exists. Today's quotation systems are run by private companies, the largest of them OTC Markets Group, which sorts the securities quoted on its system into tiers with its own names (OTCQX, OTCQB and Pink) according to the company's disclosure and other criteria the operator sets. Those labels are commercial product categories, not SEC or FINRA classifications, and they change on the operator's terms. Securities whose issuers do not make current information publicly available generally can no longer be quoted to the public after the 2020 amendments, apart from narrow exceptions such as a quotation that represents an unsolicited customer order. The operator restricts quotations in such securities to a limited-access tier it calls the Expert Market. That market exists on the operator's own terms: the SEC proposed a conditional exemption from Rule 15c2-11 to facilitate an expert market for sophisticated investors in 2020, never adopted it, and its March 2026 proposal to amend the rule asks whether the exemption should be re-proposed. The same 2026 proposal would limit Rule 15c2-11 to equity securities, removing corporate bonds and other debt from its reach; the comment period closed May 18, 2026 and the proposal had not been adopted when this page was written.

Who ends up here. Three kinds of security populate the OTC market. Stocks that never listed, including many small and start-up companies and the Level 1 American depositary receipts of foreign companies that want a US trading presence without an exchange listing. Stocks that were delisted, whether for a low price, a small market value or a bankruptcy filing, since a delisting removes a security from the exchange and not from existence. And a large volume of bonds and other debt securities, which have always traded mainly dealer to dealer. The penny stock rules, which attach to most low-priced securities not listed on an exchange, are covered on the penny stock page.

What changes for an investor. The legal protections do not disappear: the federal antifraud provisions reach every security, the dealers are FINRA members subject to its rules, and Rule 15c2-11 itself is written as a measure "reasonably designed to prevent fraudulent, deceptive, or manipulative acts." What changes is the market's texture. An exchange-listed company must be an SEC reporting company with audited financial statements on EDGAR; an OTC company may be, or may publish only what the quotation system requires, or may publish nothing and sit in a restricted tier. Fewer dealers quote most OTC securities, so the spread between the best bid and the best offer is wider and a large order moves the price more. And because there is no exchange, there is no listing standard to lose: a company that stops reporting simply becomes harder to quote and harder to sell.

A broker-dealer that wants to quote an unlisted security gathers the information Rule 15c2-11 requires, confirms it is current and publicly available, reviews it for a reasonable basis to believe it accurate, and files FINRA's form. Once FINRA processes the filing the dealer may publish bid and offer quotations in an interdealer quotation system, and other dealers may join under the piggyback exception for as long as the issuer's information stays current and public. Trades are then executed dealer to dealer or between a dealer and its customer at negotiated prices, and reported to FINRA.

A hypothetical example of what the thinner market costs. Two stocks each trade at roughly the price their dealers quote. An exchange-listed stock is quoted $50.00 bid and $50.02 offered, a spread of $0.02, or 0.04 percent of the bid. An OTC stock is quoted $2.00 bid and $2.30 offered, a spread of $0.30, or 15 percent of the bid. An investor who buys 1,000 shares of each at the offer and immediately sells at the bid pays $50,020 and receives $50,000 on the listed stock, a round-trip cost of $20, and pays $2,300 and receives $2,000 on the OTC stock, a round-trip cost of $300, which is about 13 percent of the purchase price ($300 divided by $2,300). Nothing about either company changed in those few minutes; the difference is the number of dealers competing to quote each one.

Pros

• It gives smaller or foreign companies a public trading market without the cost of an exchange listing, and it is where the shares of a delisted company continue to trade instead of becoming unsellable.
• Rule 15c2-11 ties the right to quote a security to current public information about its issuer, and the 2020 amendments closed the loophole that had let stale companies stay quoted indefinitely.
• The antifraud provisions, FINRA membership rules and the penny stock rules all apply, so an OTC security is not an unregulated one.

Cons

• Fewer dealers quote most OTC securities, so spreads are wider, liquidity is thinner and a large order can move the price against you.
• Information varies enormously: some OTC issuers file audited reports with the SEC, others publish only what a quotation system requires, and some publish nothing and can be quoted only in a restricted tier.
• The tier labels investors see are a private operator's product categories, not regulatory classifications, and a security can move between them on the operator's terms.
• The Expert Market for non-current issuers operates without an SEC exemption or rule behind it, and the rule that governs OTC quotation is itself the subject of a pending SEC proposal to narrow it to equity securities.