The OTC market is vast and fragmented, encompassing over 8,600 stocks supported by 5,300 dealers that make a market in microcap securities. Thousands of investors actively invest in these securities, which account for $20 billion in trading volume a year. For decades the National Quotation Bureau (NQB) has collected information on domestic and foreign microcap securities, and listed them in pink and yellow colored books. Now the NQB has introduced the Electronic Quotation service (EQS) that provides electronic quotes to brokers, market makers and investors in real time.
Automation of the "pink sheets" market will help it enter into the formative stage of development of an established market. Automation will also help create the characteristics of an organized market including more transparency, higher liquidity, and greater efficiency. Besides the direct benefit gained in terms of increased efficiency, lower trading costs, and higher transparency, automation of the microcap market will also have the indirect benefit of increasing investor confidence in the market. This will drive more funds into the market and greater liquidity, thereby reducing spreads and making this a virtuous circle.
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The over the counter (OTC) market is vast and fragmented, encompassing over 8,600 stocks supported by 500 dealers that make a market in these stocks. Thousands of investors actively invest in these securities, which account for $20 billion in trading volume a year.
For decades the National Quotation Bureau (NQB) has been collecting information on domestic and foreign microcap securities and listing them in books known respectively as "Pink Sheets" and "Yellow Sheets" for the color of the paper they are printed on. Now the NQB has introduced the Electronic Quotation Service (EQS) to provide electronic quotes to brokers, market makers, and investors in real time.
The microcap market has languished. Characterized by very low levels of transparency, limited liquidity, little information flow, high processing costs, and minimal market and price efficiency, this market has been neglected by large securities firms and therefore has not attracted the capital that has driven up trade volumes in major US markets.
Automation of the microcap market will move it into the formative stage of development of an established market. This will help this market develop important characteristics of an organized market including more transparency, higher liquidity, and greater efficiency.
Besides the direct benefits, automation of the microcap market will also have the indirect benefit of increasing investor confidence. This will drive more funds into the market, which will increase liquidity and thereby reduce spreads and create a virtuous circle.
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