The “OTC”

Penny stocks are not traded on a stock exchange market but are traded in the over-the-counter (OTC) market. Part of the OTC market is the NASDAQ National Market (NNM) of the NASDAQ National (Association of Securities Dealers Automated Quotation) System, which does not include any penny stocks. There are also non-NNM NASDAQ securities, including some penny stocks. The NASDAQ system has listing standards that change from time to time and, depending on the standards, there may be more or fewer penny stocks on NASDAQ. If you purchase a low-priced security that is listed on NASDAQ, it will meet certain minimum standards. In addition, many NASDAQ prices are quoted regularly in newspapers, allowing you to follow the price of your security instead of forcing you to rely on your broker for all price information. The third major component of the OTC market is the National Quotation Bureau’s (NQB) service, commonly referred to as the “pink sheets”. The NQB’s securities lists and price information, printed on pads of long, narrow sheets of pink paper, have, for all practical purposes, no meaningful listing standards, and price information is sometimes difficult, if not impossible, for the small investor to obtain. Broker-dealers obtain their price information by calling the trading desks of three “market makers”. Obviously, small investors do not have access to those traders and must rely on their stockbroker for accurate price information.