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Trading OTCBB: Understanding the Landscape
In connection with the SEC's approval of NASD Rule 6540 allowing ECNs/ATSs to display their best bid and offer in the Over-the-Counter-Bulletin Board (the "OTCBB") montage, ATSs have recently opened new automated trading platforms. Set forth below is a six-page brief is an overview of and the benefits offered under the updated OTCBB trading system. This is a valuable tutorial for any OTCBB participant to understand the mechanics of the market. Introduction One can only wonder at the first moment ancient man recognized the worth of his prized possession not solely as a means of primitive protection or food but as a value worthy of exporting or trading - within the clan, across the valley, around the globe. How quickly our desire for more helped to create new empires centered around strategic trading routes encompassing land and water; forever shaping culture and history. We are a people of innovative traders. As novice merchants or experienced analysts, the economies of today are no less resourceful in making their shares available through the medium of multi-faceted stock markets. We will examine one unique entity within the trading process, the Over the Counter Bulletin Board (OTCBB) and how its trading is processed and its profits are determined. History In June 1990, the OTCBB began operation as part of important market structure reforms to provide transparency in the OTC equities market. These regulations were important in that they provided a level of accountability and scrutiny that the volatile market of “penny stocks” so desperately needed even demanded. The Penny Stock Reform Act of 1990 mandated the U.S. Securities and Exchange Commission (SEC) to establish an electronic system that met the requirements of Section 17B of the Exchange Act. The system was designed to facilitate the widespread publication of quotation and last-sale information. Since December 1993, firms have been required to report trades in all domestic OTC equity securities through the Automated Confirmation Transaction Service (ACT) within 90 seconds of the transaction. In April 1997, the SEC approved the operation of the OTCBB on a permanent basis with some modifications, and in May 1997, Direct Participation Programs (DPPs) became eligible for quotation on the OTCBB. In April 1998, all foreign securities and American Depositary Receipts (ADRs) that are fully registered with the SEC became eligible for the display of real-time quotes, last-sale prices, and volume information on the OTCBB. Understanding the trading landscape Most stocks are traded on exchanges, which are places where buyers and sellers meet and determine an equitable price for a portion of the company’s securities (stock). Some exchanges are physical locations where transactions are carried out on a trading floor. The other type of exchange is virtual, composed of a network of computers where trades are made electronically. No matter the location, the purpose of a stock market is to facilitate the exchange of securities between buyers and sellers, thus reducing the risks of investing. [continued...] Want to know more? Download the White Paper "Trading OTCBB: Understanding the Landscape" for just $9.95. People who ordered this paper also ordered: |
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