Yes Virginia, You can Successfully Trade the OTC

David Feldman  |

We all know about the famous letter from one Virginia O’Hanlon in 1897 to the New York Sun newspaper asking if there really is a Santa Claus. Her father encouraged her, telling her that if it’s in the Sun, it must be so.

In response to the letter, the paper wrote an editorial entitled, “Yes, Virginia, there is a Santa Claus.” The original letter, by the way, is now valued at around $30,000. Now we imagine Virginia’s great granddaughter (of course also named Virginia), running a burgeoning biotech company and wondering if it really is possible for a company to have a healthy trading stock on the over-the-counter markets, or whether the only choice for small companies is to make it to a larger national exchange. So what lesson does she learn?

Christmas Comes Early for OTC Market Traders

Well, Virginia, unlike the fantasy the Sun chose (appropriately IMHO) to perpetuate in 1897, it is indeed possible for an OTC company to have a successfully trading stock. Yes, in many cases, the goal is to eventually uplist to a national exchange. But on the OTC markets, one can develop the right market support through a carefully concocted, legitimate brew of elements. If the company has a good story, strong and experienced management, a good base of capital, a broad shareholder base, clean financials with limited overhang from convertibles and warrants, and, most importantly, a dedicated, reputable investor relations firm that really believes in the company, strong trading can be developed even in the OTC. I have found that where companies struggle, it is usually because one of these elements is lacking. And that is also usually the element that is keeping them from completing an uplisting.

One challenge smaller companies admittedly face is the inability to use short form registration for quicker and easier registered direct offerings. For a number of years now, I have been advocating to fix that. The House Financial Services Committee has passed a bill to do so...we will see what happens. Until then, these companies move ahead with cumbersome private placements, which are successful, but more difficult to complete. But again, with all the other elements in place, raising money and trading successfully over-the-counter is very doable.

DISCLOSURE: The views and opinions expressed in this article are those of the authors, and do not represent the views of Readers should not consider statements made by the author as formal recommendations and should consult their financial advisor before making any investment decisions. To read our full disclosure, please go to:


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