The OTCBB is an acronym for the Over the Counter Bulletin Board. It’s essentially an electronic system that carries quotes, last sale prices, volume data, and other information on thousands of over the counter equity securities including penny stocks. OTCBB equity securities are not traded or even listed on NASDAQ or other major securities exchanges.
The OTCBB began in 1990 on a probationary period that lasted until 1997 when the US Securities and Exchange Commission (SEC) approved the OTCBB on a permanent basis after a few recommended alterations. Less than two years later, the SEC brought in the OTCBB Eligibility Rule making all securities listed after January 4, 1999 required to disclose their financial information to the SEC and banking regulators so eligibility criteria will be met. Additionally, all equity securities are required to be reported within 90 seconds of the transaction completion. Because of these regulations from the SEC, which is the same governing body that regulates NASDAQ, trading through the OTCBB possesses a high level of security and reporting.
The OTCBB has over 230 participating Market Makers, who are entities that are entitled to quote a stock after thoroughly investigating the company. The volume of OTCBB trades has been increasing dramatically as investors are looking for ways to be in more independent control of their investments.
Equity securities listed on the OTCBB have advantages over their NASDAQ counterparts in the amount of gain they can achieve in a day. While NASDAQ share price increases at a relatively slow pace, shares listed on the OTCBB have proven to be capable of substantial gains.
NASDAQ securities cannot keep pace with over the counter securities, since the growth of NASDAQ stocks occurs quite slowly due to the large size of the companies. NASDAQ stocks are inherently difficult to speculate with, as the depth and transparency of financial reporting that is required by the SEC, often reveals their real value. Thus, as financial experts buy and sell NASDAQ stocks, the rest of the investors follow suit.
Over the counter stocks are plentiful. In 1993, there were around 4 billion over the counter shares traded. In the year 2000, this number had grown to 117 billion. Continuing the trend, over the counter shares were traded at a massive volume of almost 650 billion shares. Despite the huge number of shares traded annually, the number of companies listed on the OTCBB or in the Pink Sheets usually runs around 3,500 firms.