What Is OTCQX? – Working, Regulations, Tiers, And More
OTCQX is a part of over-the-counter markets. Basically, all stocks do not get their listings in big stock exchanges like the New York Stock Exchange (NYSE). Such stocks get their listings on over-the-counter (OTC) markets. This enables these stocks to trade better. More than 12K stocks are in over-the-counter markets. There are many companies who choose to trade this way for various reasons.
In this article, we will look at OTCQX and how this top-tier over-the-counter marketplace works. Furthermore, you will also learn about the various rules and regulations that allow OTCQX to operate. Finally, we will discuss the various tiers of OTC markets. Hence, to learn more, read on through to the end of the article.
What Is OTCQX?
According to Investopedia,
“The OTCQX is the top tier of the three marketplaces for the over-the-counter (OTC) trading of stocks. The OTCQX is provided and operated by the OTC Markets Group. Stocks that trade on this forum must meet more stringent qualification criteria compared to the other tiers, which are the OTCQB/OTCBB and the Pink Sheets.”
OTCQX is a part of the OTC Markets Group. The latter is the owner and operator of the biggest inter-dealer electronic quotation in the United States. Apart from that, the OTC Market also offers a trading system of over-the-counter (OTC) securities. There are close to twelve thousand OTC securities.
There are three tiers of OTC Securities:
- OTCQX: This has the strictest requirements for listing.
- OTCQB: It is the venture market of OTC securities.
- The Pink Open Market: It includes companies that are in financial distress or have gone bankrupt. In terms of the number of companies and volume of trading, the Pink Open Market is the largest.
With the help of this trading services division, the OTC Markets Group helps in connecting brokers with dealers. This further helps to provide liquidity and infrastructure, which assists in executing trades on the OTC Market.
Once a company gets a listing in the OTC Market, the corporate services division helps that company to go public. This allows the company to gain better visibility by listing in one of the three tiers of the OTC Market.
How Does OTCQX Work?
As already discussed, OTCQX is one of the three stock exchanges that list over-the-counter stocks. The following cannot qualify for OTCQX:
- Penny stocks
- Shell companies
- Bankrupt companies
According to the Motley Fool,
“(OTCQX) is the most selective of the three. Only 4% of all OTC stocks listed are traded on this exchange. It has the highest reporting standards and strictest oversight and generally consists of foreign companies that list on major exchanges abroad, as well as some U.S. companies that plan to eventually list on the NYSE or the Nasdaq.”
The OTC market is decentralized. Here, the securities do not get listings on major trading exchanges. A network of dealers directly trades these securities. These dealers do not provide an order matchmaking service like NYSE. Instead, to facilitate the buying and selling of orders, they carry inventories of securities.
There is also an OTCQX Roster (also known as the OTCQX Best Market). This roster comprises a large quantity of blue-chip stocks. These stocks come from Canada, Europe, Brazil, and Russia.
The OTC Link Runs the OTCQX marketplace. The link is an electronic inter-dealer quotation and trading system that belongs to the OTC Markets Group. The link gets its permission to operate as a broker-dealer, and its registration from the SEC.
With the help of the link, broker-dealers will be able to post and disseminate their quotes. Apart from that, the link also allows those brokers to negotiate trades in the electronic messaging system of the marketplace.
OTCQX Regulation And Standards
Investopedia states that –
“Stocks that trade on this forum must meet more stringent qualification criteria compared to the other levels. Also called the OTCQX Best Market, it includes a large number of blue-chip stocks from Europe, Canada, Brazil, and Russia. These large foreign stocks are frequently global household names. Penny stocks, shell companies, and companies in bankruptcy cannot qualify for a listing on the OTCQX.”
There are strict standards that every company that is trading on OTCQX needs to follow. This helps in improving the transparency of the process. This stock market mostly includes companies that are linked with stock promoters and other shady operators.
However, there are standards of OTCQX that a company needs to meet if it wants to see itself in the OTC market. The company needs to have high financial standards, needs to be current in its disclosure, and a professional third-party advisor needs to sponsor it.
All listed companies in the OTCQX have to report to the Securities and Exchange Commission (SEC) or the Federal Deposit Insurance Corporation (FDIC).
Different Tiers Of OTC (Over-The-Counter) Markets
Since there is a high cost of listing, many large and prestigious companies do not list on the NYSE. Rather, they prefer listing on OTCQX. Furthermore, they also avoid maintaining their listings through various expenses on legal requirements and strict ongoing disclosures. Furthermore, the fee for international companies is much smaller who meet the OTCQX requirements.
If a Premier Tier company in the United States wants to get listed on OTCQX, it will need to meet additional requirements. This tier is for those large and high-quality issues that have the capability to quality on a national stock exchange.
On the other hand, the OTCQX International Premier tier is for foreign companies that meet some qualifications of the NYSE’s worldwide standards.
Wrapping Up
Hope this article was helpful for you in understanding the need and purpose of the OTCQX market. This is the highest of the three tiers of OTC markets. You will find here those stocks that do not have their listings on top stock exchanges like the NYSE. However, there are certain rules for companies that get their listings on OTCQX.
OTCQX companies are also subject to SEC regulation. Furthermore, a stock in OTCQX cannot be a penny stock. In addition to that, these stocks also need to adhere to governance transparency. Do you have anything to add regarding OTCQX? Share your information with us in the comments section below.
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soumava goswami
A passionate writer and an avid reader, Soumava is academically inclined and loves writing on topics requiring deep research. Having years of content writing experience, Soumava also loves creating blogs in other domains, including digital marketing, business, technology, travel, and sports.
