One motivation for a OTC listing — A foreign company does not want to meet the filing and listing requirements of the major U.S. exchanges when they already meet the requirements in their home country. Hiring a team of experts in U.S. security law and filing requirements is expensive; especially considering the companies already have a similar team to handle these requirements in their home country. Household names like Nestle, Nintendo, and Volkswagen are three examples of quality companies that list on the OTC.
https://www.investopedia.com/terms/o/otc-markets-group-inc.asp explains that AA) OTCQX is the top tier “system” that includes many foreign blue-chips. CC) OTC-Pink is the 3rd and lowest tier.
Ranked by listing criteria and quality of stocks:
- Nyse, Nsdq
- Amex
- AA) OTCQX
- BB) OTCQB
- CC) OTC-Pink
— How does a company get on the OTCBB
(Note the Finra OTCBB is basically replaced by BB) OTCQB , both denoted BB, the 2nd-tier in OTC-Markets. However, market data is still reported as OTCBB stocks.)
An issuer may not submit an application directly to be quoted on the OTCBB. A market maker must sponsor the security and demonstrate compliance with SEC Rule 15c2-11 before it can initiate a quote in a specific security on the OTCBB.
Before a company can post a quote for its OTC security, it must first recruit a market maker to sponsor the issue. Only market makers are allowed to apply to have a quote listed on the board, and only one market maker is needed per security issued. Since the securities are technically “not listed” on the OTCBB, the issuing company does not have to pay any fees to have its shares quoted. Market makers, however, must pay a fee of six dollars per security per month for all of the securities that they quote on the board.
Some delisted stocks move from NYSE/Nasdaq/Amex to OTCBB or OTC-pink.
— risks, drawbacks
OTC stocks lack liquidity and are often thinly traded. The bid-ask spread is wide, and investors need to be patient and cautious when putting in any buy or sell order.
When I need to sell someday, the depth of market could lead to longer wait, and inferior price.
When I need to buy, I have noticed that my buy@99 was skipped when a trade executed at $98 ! This happened to ACGBY, OGZPY etc