What Is the OTC Stock Market? Hours, Stocks, & More

The Securities and Exchange Commission (SEC) strictly regulates centralized stock exchanges like the NYSE and NASDAQ. As such, they also have very stringent listing requirements. For example, companies looking to be listed on the NYSE should fulfil the following criteria:

• A market value of $40 million or more
• A minimum of 1.1 million publicly traded shares
• At least 400 unique shareholders
• A minimum share price of $4.00

Conversely, over-the-counter (OTC) stock markets do not adhere to strict disclosure requirements and may not be subject to regulatory oversight.

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What Is the OTC Stock Market?

The OTC stock market refers to the group of stock exchanges with listings of over 12,000 over-the-counter securities. OTC Markets Group operates a public market for over-the-counter securities and provides a real-time quotation service called OTC Link.

While usually referred to as a collective financial market (i.e., the OTC stock market), there are actually three stock exchanges that list OTC stocks:

1. Best Market (OTCQX)

The Best Market is known for being selective and adhering to the highest reporting standards and regulatory oversight. As such, only around 4% of all OTC stocks are traded on Best Market. The stocks on this exchange mainly consist of foreign companies otherwise listed on major exchanges abroad and U.S. companies looking to eventually get listed on major stock exchanges.

2. Venture Market (OTCQB)

The Venture Market stock exchange is considered the “middle tier” in OTC markets and comprises many developing companies. The Venture Market requires companies to submit their financials and agree to a certain level of transparency and oversight.

3. Pink Sheets

The Pink Sheets stock exchange does not have reporting requirements or oversight. As such, you may find a mix of legitimate companies here, shell corporations, and illegitimate businesses.

What Are Small-Cap Stocks?

Small capitalization, or “small cap” stocks, have market capitalizations ranging between $250 million and $2.5 billion. Small caps are new and upcoming companies with low total values and hold growth potential, as they have yet to tap prospects that come with more capital.

OTC markets make small-cap stocks available to investors and allow those who find the costs for listing on the NYSE and NASDAQ quite prohibitive. Small-cap stocks have also performed well compared to their larger-cap counterparts in terms of profit and revenue growth. Per Schroders, small-cap stocks even performed well during recessions, with a 9.9% annualized net total return in the span of 40 years—including the great recession of 2007-2008. Large-cap stocks, contrarily, only saw returns amounting to 4.9% in the same period.

The lower visibility of small-cap stocks can lead to unique investment possibilities, as they are sometimes underrated. Additionally, inefficiencies in the market can cause their shares to be undervalued—highlighting how savvy investors can acquire quality stocks at affordable prices with small-cap stocks.

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Exploring OTC Market Possibilities

The OTC market carries a higher level of risk than major exchanges, but there could be potentially good investments here. You just have to know where to look and how to do your due diligence before jumping in.

There are, for example, several international stocks from renowned global brands on the OTC markets, like Samsung Electronics, which mainly trades on the Korea Exchange. While it has a market cap of over $400 billion, interested investors who do not have brokerage accounts for buying stock on foreign markets could opt for OTC stocks.

Of course, you also have your “diamonds in the rough,” or companies that are yet to meet the standards of major exchanges but have great potential. These companies plan to list on the NASDAQ and NYSE eventually but are on the OTC markets as they scale. Walmart is a good example of this, having been an OTC stock from 1970 to 1972.

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Trading OTC Stocks: Insights

If you’re looking to trade an over-the-counter market, the first step is creating an account with a reliable brokerage firm. Many online brokerage firms allow you to trade on both the OTC market and major exchanges. All transactions in OTC markets are done through market makers, and you aren’t going to trade peer-to-peer with individual investors.

OTC Stock Market Hours and Pre-Market Trading

The OTC stock market trades in extended hours, meaning you can trade even before markets open and after closing. This is called pre-market and after-hours trading and may be a viable option for those with busy schedules.