Investing in OTC Securities

There is a wide range in the quality of issuers whose securities are traded Over the Counter (OTC) - from major international conglomerates to very small, highly speculative companies. Therefore, investors should conduct thorough research prior to making an investment decision. A good starting point for research is the OTC market tier structure – which quickly indicates the level and timeliness of information available for OTC companies.

The OTC Tier System

All OTC securities are assigned a market tier based on their reporting method (SEC Reporting, Alternative Reporting Standard) and disclosure category – Current, Limited or No Information. Securities listed on OTCQX, the highest tier of the OTC market, are required to have Current disclosure and meet minimum financial qualifications. Securities in OTCQB tier must be SEC, Bank or Insurance reporting and must be Current in their disclosure.

Securities in the OTC Pink (also known as Pink Sheets) market tier are further divided, based on the amount and timeliness of their financial disclosure, into three categories:

• Current Information - Reporting companies that submit filings to regulators with powers of review and that make the filings publicly available or non-reporting companies that make current information publicly available on the OTC Disclosure and News Service pursuant to OTC Markets Guidelines for Providing Adequate Current Information.
• Limited Information – Companies that have limited financial information not older than six months available on the OTC Disclosure and News Service or have made a filing on the SEC's EDGAR system in the previous six months.
• No Information - Companies that are not able or willing to provide disclosure to the public markets - either to a regulator, an exchange or OTC Markets.

Companies that are deemed to have a public interest concern associated with them due to stock promotion, disruptive corporate actions, legal proceedings are classified by OTC Markets as Caveat Emptor (Buyer Beware).
Please see the OTC market tier section for more information.

Investing in OTC Securities

To trade OTC securities you must open an account with a brokerage firm that deals in OTC securities. Investors cannot buy or sell securities directly through OTC Markets Group. A condensed list of such brokerage firms include:

• E*TRADE
• Schwab
• TD-Ameritrade
• Scottrade

Investors should clearly understand that trading practices for OTC securities are different from those of securities traded on exchanges. Your broker-dealer or the broker-dealer they route your order to, may not provide you with limit order display or instantaneous executions in OTC securities.
Investors in OTC securities should thoroughly understand the difference between a Market and Limit Order:

• Market Order – a market order does not have a set price and is therefore executed immediately at the current ‘market’ price. Markets, especially OTC markets, can be highly volatile and therefore the price of execution may differ dramatically from the price at time of order entry. Those who use market orders are more concerned about the speed of the execution as opposed to the price.
• Limit Order – a limit order does have a set price and therefore may only be executed at the set price; however, a limit order may never get executed because the market may move away from the set price. Those who use limit orders risk not having a order executed.

OTC Markets cooperates fully with securities regulators and those regulators are continually working to combat fraud; however, it is not possible to eradicate fraud from the markets. Accordingly, you must be very cautious when making a decision to invest in an OTC security.