The Over the Counter Bulletin Board (OTCBB) is an electronic exchange system for the buying and selling of micro cap stocks. The OTCBB is different from other stock exchanges like the NASDAQ or the New York Stock Exchange. Although companies with micro cap stocks or penny stocks must file all proper Securities and Exchange Commission reports to be listed on the Over the Counter Bulletin Board OTCBB, they do not need to meet the minimum requirements that are necessary on the large exchanges. The OTCBB is regulated by the NASD.
OTCBB and Micro-Cap Stocks
The Over the Counter Bulletin Board OTCBB provides an opportunity for micro cap stocks and penny stocks to be listed on an exchange and gain the benefits of public trading. Some companies that are traded on the Over the Counter Bulletin Board have been de-listed from one of the major exchanges for failing to meet the listing requirements. Other micro-cap stocks are aspiring to list on the major exchanges for more financial credibility.
Regulating Penny Stocks on OTCBB
Over the counter stocks can be subject to increased volatility because of its lower trading volume. Often times, price movement on these micro cap stocks and penny stocks can be huge, meaning a trader can gain a large profit or suffer a considerable loss by investing in micro cap stocks and penny stocks.
Investors on the Over the Counter Bulletin Board must be careful whenever they invest in a micro-cap stock or penny stock to make sure they are not scammed. Like their name implies, penny stocks usually only are valued at a few cents per share and their entire market cap may total to only a few million dollars, if not less.
Because the OTCBB is a thinly traded market, over the counter stocks have sometimes become susceptible to price manipulation. The OTCBB is also a prime target for “pump-and-dump” schemes, where a person who owns a given micro cap stock or penny stock creates large amounts of interest around the stock (pump) and then sells their shares when more investors buy in (dump).