Big Change for the Bulletin Board
You may have run into the changes sweeping across the Over
The Counter Bulletin Board.
Maybe you wanted a quote, but the stock had vanished from
the system. Or a trading symbol suddenly sprouted an extra
letter "E", hanging off it like a new tail.
Such oddities are sparked by an important new amendment to
the Rules of the National Association of Securities Dealers
(NASD), the body that operates the Bulletin Board through
its Nasdaq Stock Market subsidiary.
It's called the OTC Bulletin Board Eligibility Rule.
Approved in January 1999 by the Securities and Exchange
Commission (SEC),it was phased in over a period of a year
and a half and became fully effective in late June.
-----------
Major Shift
The new Eligibility Rule marks a fundamental shift in Nasdaq
policy and changes one of the important ground rules of the
OTCBB.
Basically, the rule says that a stock may no longer be
quoted on the Bulletin Board unless the company is "fully
reporting".
In other words, the firm must provide audited financial
statements and report current financial information
periodically to the SEC, or to industry regulators in the
case of banks and insurance companies -- and these reports
must be filed on time.
-------------
Off the Board
If reports aren't filed when due, a short grace period is
allowed. (At this point, the trading symbol gets that extra
"E" to red flag the situation.)
If the problem isn't corrected, then the stock is cut from
the Bulletin Board -- which means it loses significant
market exposure, and often value.
The disqualified stock may drift into a "work out" market
devoid of firm dealer quotes. Or it may move via special
exemption onto the Pink Sheets, a smaller quotation medium
that's been published for market makers for nearly a
century.
(The Pink Sheets, taking a cue from the Bulletin Board, are
also undergoing major changes and moving online at http://www.pinksheets.com. In August, this new website
began publishing free 15 minute delayed quotes on Pink Sheet
stocks, and also some basic company data.)
-----------------------
More Info for Investors
The goal of the new Eligibility Rule is to give investors
better and more timely information about companies whose
stocks are quoted on the Bulletin Board -- often small,
thinly capitalized firms whose uncertain futures offer
speculative investors the possibility of either great reward
or great disappointment.
These stocks are generally low priced. Many are under $5 a
share, some only pennies. Still, more than 900 Bulletin
Board stocks are quoted above $5 a share as we write, and
nearly 20 are over $200.
Adena Friedman has served as Director of the OTCBB for the
past three years. She manages a staff of about a dozen
people at NASD headquarters in Washington D.C. An
articulate woman with a MBA from Vanderbilt University, she
recently met in her office with our editor, Tom Wobker.
Friedman told him she believes the Eligibility Rule aids
investors by providing added information about companies.
"One of the goals we have for the Bulletin Board is to make
more useful information available to investors, and I think
the new rule is serving that purpose," she said.
"The change gives them access to more information -- and
more objective information -- than they had before. I think
it gives them some degree of extra protection."
-------------
Rising Volume
The timing of this important change coincides with an
upsurge in popularity of the Bulletin Board, which accounts
for more than 90% of all U.S. over the counter trades. (An
over the counter stock is one that's not listed or traded on
Nasdaq or a national securities exchange.)
As the great bull market of the last decade took off, so did
trading on the OTCBB.
In 1995, daily volume averaged about 41 million shares on
fewer than 7,000 trades a day. For the first quarter of
2000, that average skyrocketed to over one billion shares on
200,000 trades a day.
Director Friedman attributes much of the Bulletin Board's
recent popularity to three factors that all converged at
once.
"We now have a great deal of media focus on the stock
market, both on TV and in the press, so the public has been
made more aware of the financial markets. Also there are
free delayed quotes available in many places on the
Internet, and there are Internet financial chat rooms that
didn't exist before, and all these things probably lead to
more investor interest," she says.
------------------
Stock Supply Drops
One notable effect of the new rule is a sharp decline in the
number of stocks quoted on the Bulletin Board.
SEC reporting can be a relatively complex, slow and
expensive process. It involves certified public accountants
and often securities lawyers. Many stocks were dropped when
firms either decided not to spend the time and money needed
to report, or missed their phase-in deadline.
Bulletin Board stocks declined from nearly 6,700 in June
1999 to around 3,700 in June 2000, as roughly 3,000
non-reporting companies fell away.
(It's likely some are now working on filing paperwork or
answering SEC comments and will eventually be quoted again.)
Despite this reduction, investors seem hungry for the fully
reporting stocks that remain.
Total OTCBB trading volume for February 2000 rose to 24.2
billion shares -- over four times the February 1999 total.
Volume crested at over 25 billion shares last March, before
falling abruptly in April's sharp market correction to
levels not seen since 1999, and then drifting lower during
the summer trading doldrums.
------------------
More Growth Ahead?
Corrections and pullbacks are to be expected, of course. But
it seems likely that unless a strong bear market hits, the
Bulletin Board will continue to attract growing numbers of
aggressive investors well into the future. There are
several reasons.
Continued economic expansion, demographics that favor saving
and investing, the popularity of financial news media, and
greater interest in mini-and micro-cap stocks, all fuel the
trend. Wider delivery of market data also plays a key role.
The number of professional market data terminals that access
OTCBB real-time quotes has now climbed to roughly 500,000
worldwide. In addition, the Internet today carries these
quotes in delayed form to millions of individual home and
office computers.
Such exposure dramatically increases the potential size,
breadth and liquidity of this marketplace.
-------------------
Evolution Continues
We can probably expect more changes down the road, since the
Bulletin Board is relatively young and still evolving.
Developed in 1990 as a pilot program for a computerized real
time quotation medium, its goal was to improve market
transparency and regulatory oversight by quickly
disseminating quotations and sales information on over the
counter stock trades.
Before the Bulletin Board, such information was limited.
Quotes were published only once a day on the old Pink Sheets
and other market data was very hard to come by. So the
OTCBB was a big step forward.
Upgraded periodically from the outset, today it gives not
only real time quotes but also last sale price and real time
volume data -- made possible because every Bulletin Board
trade is now reported within 90 seconds through an automated
confirmation system.
This gives investors, brokers, dealers and companies a much
clearer picture of the current market. It also helps NASD
Regulation -- the independent NASD subsidiary that regulates
OTCBB market makers -- to keep a closer eye on trading
activity.
--------------
Useful Website
One of the Bulletin Board's more useful innovations for
investors is the website at...
http://www.otcbb.com.
The site publishes market statistics in a number of
different categories, OTCBB news, investor information,
FAQ's, and other data. Various trading activity reports are
also available there for a nominal fee.
The site continues to change and improve. Latest additions:
free 15 minute delayed quotes on Bulletin Board stocks,
including inside bid and ask prices, cumulative share volume
for the current trading day, and other data.
Director Friedman is upbeat about the growing usefulness of www.otcbb.com. Relying on her "right hand" -- product
manager Liz Heese -- and skilled information technology
support people, her aim is to keep improving the information
investors find there.
"We want to provide plenty of information for investors",
says Friedman. "But we want to keep the site simple to use
and not too cluttered."
------------
Bottom Line
Besides the Eligibility Rule, other OTCBB changes are also
underway.
They include Nasdaq's new trade and quote halt authority, a
proposed pilot program for limit order protection, a new
minimum quotation size rule for high price stocks, and
possible amendment to the Three Quote Rule to speed up trade
executions.
Just last week, Nasdaq asked the SEC to approve new rules
intended to update reporting procedures, automating and
speeding up the process to make it more like the system used
by The Nasdaq Stock Market.
But the Eligibility Rule, at least for the moment, promises
to have the most dramatic and immediate impact on investors
and the marketplace.
While it's too soon to fully assess the results of the new
change at this point, we believe the rule is already
exerting a strong positive effect on the Bulletin Board.
Despite the usual confusion and discomfort that initially
accompany change, we expect that over time the Eligibility
Rule will significantly enhance investor safety and
confidence. It should lead to a more transparent, respected
and important market for small company stocks.
You may have run into the changes sweeping across the Over
The Counter Bulletin Board.
Maybe you wanted a quote, but the stock had vanished from
the system. Or a trading symbol suddenly sprouted an extra
letter "E", hanging off it like a new tail.
Such oddities are sparked by an important new amendment to
the Rules of the National Association of Securities Dealers
(NASD), the body that operates the Bulletin Board through
its Nasdaq Stock Market subsidiary.
It's called the OTC Bulletin Board Eligibility Rule.
Approved in January 1999 by the Securities and Exchange
Commission (SEC),it was phased in over a period of a year
and a half and became fully effective in late June.
-----------
Major Shift
The new Eligibility Rule marks a fundamental shift in Nasdaq
policy and changes one of the important ground rules of the
OTCBB.
Basically, the rule says that a stock may no longer be
quoted on the Bulletin Board unless the company is "fully
reporting".
In other words, the firm must provide audited financial
statements and report current financial information
periodically to the SEC, or to industry regulators in the
case of banks and insurance companies -- and these reports
must be filed on time.
-------------
Off the Board
If reports aren't filed when due, a short grace period is
allowed. (At this point, the trading symbol gets that extra
"E" to red flag the situation.)
If the problem isn't corrected, then the stock is cut from
the Bulletin Board -- which means it loses significant
market exposure, and often value.
The disqualified stock may drift into a "work out" market
devoid of firm dealer quotes. Or it may move via special
exemption onto the Pink Sheets, a smaller quotation medium
that's been published for market makers for nearly a
century.
(The Pink Sheets, taking a cue from the Bulletin Board, are
also undergoing major changes and moving online at http://www.pinksheets.com. In August, this new website
began publishing free 15 minute delayed quotes on Pink Sheet
stocks, and also some basic company data.)
-----------------------
More Info for Investors
The goal of the new Eligibility Rule is to give investors
better and more timely information about companies whose
stocks are quoted on the Bulletin Board -- often small,
thinly capitalized firms whose uncertain futures offer
speculative investors the possibility of either great reward
or great disappointment.
These stocks are generally low priced. Many are under $5 a
share, some only pennies. Still, more than 900 Bulletin
Board stocks are quoted above $5 a share as we write, and
nearly 20 are over $200.
Adena Friedman has served as Director of the OTCBB for the
past three years. She manages a staff of about a dozen
people at NASD headquarters in Washington D.C. An
articulate woman with a MBA from Vanderbilt University, she
recently met in her office with our editor, Tom Wobker.
Friedman told him she believes the Eligibility Rule aids
investors by providing added information about companies.
"One of the goals we have for the Bulletin Board is to make
more useful information available to investors, and I think
the new rule is serving that purpose," she said.
"The change gives them access to more information -- and
more objective information -- than they had before. I think
it gives them some degree of extra protection."
-------------
Rising Volume
The timing of this important change coincides with an
upsurge in popularity of the Bulletin Board, which accounts
for more than 90% of all U.S. over the counter trades. (An
over the counter stock is one that's not listed or traded on
Nasdaq or a national securities exchange.)
As the great bull market of the last decade took off, so did
trading on the OTCBB.
In 1995, daily volume averaged about 41 million shares on
fewer than 7,000 trades a day. For the first quarter of
2000, that average skyrocketed to over one billion shares on
200,000 trades a day.
Director Friedman attributes much of the Bulletin Board's
recent popularity to three factors that all converged at
once.
"We now have a great deal of media focus on the stock
market, both on TV and in the press, so the public has been
made more aware of the financial markets. Also there are
free delayed quotes available in many places on the
Internet, and there are Internet financial chat rooms that
didn't exist before, and all these things probably lead to
more investor interest," she says.
------------------
Stock Supply Drops
One notable effect of the new rule is a sharp decline in the
number of stocks quoted on the Bulletin Board.
SEC reporting can be a relatively complex, slow and
expensive process. It involves certified public accountants
and often securities lawyers. Many stocks were dropped when
firms either decided not to spend the time and money needed
to report, or missed their phase-in deadline.
Bulletin Board stocks declined from nearly 6,700 in June
1999 to around 3,700 in June 2000, as roughly 3,000
non-reporting companies fell away.
(It's likely some are now working on filing paperwork or
answering SEC comments and will eventually be quoted again.)
Despite this reduction, investors seem hungry for the fully
reporting stocks that remain.
Total OTCBB trading volume for February 2000 rose to 24.2
billion shares -- over four times the February 1999 total.
Volume crested at over 25 billion shares last March, before
falling abruptly in April's sharp market correction to
levels not seen since 1999, and then drifting lower during
the summer trading doldrums.
------------------
More Growth Ahead?
Corrections and pullbacks are to be expected, of course. But
it seems likely that unless a strong bear market hits, the
Bulletin Board will continue to attract growing numbers of
aggressive investors well into the future. There are
several reasons.
Continued economic expansion, demographics that favor saving
and investing, the popularity of financial news media, and
greater interest in mini-and micro-cap stocks, all fuel the
trend. Wider delivery of market data also plays a key role.
The number of professional market data terminals that access
OTCBB real-time quotes has now climbed to roughly 500,000
worldwide. In addition, the Internet today carries these
quotes in delayed form to millions of individual home and
office computers.
Such exposure dramatically increases the potential size,
breadth and liquidity of this marketplace.
-------------------
Evolution Continues
We can probably expect more changes down the road, since the
Bulletin Board is relatively young and still evolving.
Developed in 1990 as a pilot program for a computerized real
time quotation medium, its goal was to improve market
transparency and regulatory oversight by quickly
disseminating quotations and sales information on over the
counter stock trades.
Before the Bulletin Board, such information was limited.
Quotes were published only once a day on the old Pink Sheets
and other market data was very hard to come by. So the
OTCBB was a big step forward.
Upgraded periodically from the outset, today it gives not
only real time quotes but also last sale price and real time
volume data -- made possible because every Bulletin Board
trade is now reported within 90 seconds through an automated
confirmation system.
This gives investors, brokers, dealers and companies a much
clearer picture of the current market. It also helps NASD
Regulation -- the independent NASD subsidiary that regulates
OTCBB market makers -- to keep a closer eye on trading
activity.
--------------
Useful Website
One of the Bulletin Board's more useful innovations for
investors is the website at...
http://www.otcbb.com.
The site publishes market statistics in a number of
different categories, OTCBB news, investor information,
FAQ's, and other data. Various trading activity reports are
also available there for a nominal fee.
The site continues to change and improve. Latest additions:
free 15 minute delayed quotes on Bulletin Board stocks,
including inside bid and ask prices, cumulative share volume
for the current trading day, and other data.
Director Friedman is upbeat about the growing usefulness of www.otcbb.com. Relying on her "right hand" -- product
manager Liz Heese -- and skilled information technology
support people, her aim is to keep improving the information
investors find there.
"We want to provide plenty of information for investors",
says Friedman. "But we want to keep the site simple to use
and not too cluttered."
------------
Bottom Line
Besides the Eligibility Rule, other OTCBB changes are also
underway.
They include Nasdaq's new trade and quote halt authority, a
proposed pilot program for limit order protection, a new
minimum quotation size rule for high price stocks, and
possible amendment to the Three Quote Rule to speed up trade
executions.
Just last week, Nasdaq asked the SEC to approve new rules
intended to update reporting procedures, automating and
speeding up the process to make it more like the system used
by The Nasdaq Stock Market.
But the Eligibility Rule, at least for the moment, promises
to have the most dramatic and immediate impact on investors
and the marketplace.
While it's too soon to fully assess the results of the new
change at this point, we believe the rule is already
exerting a strong positive effect on the Bulletin Board.
Despite the usual confusion and discomfort that initially
accompany change, we expect that over time the Eligibility
Rule will significantly enhance investor safety and
confidence. It should lead to a more transparent, respected
and important market for small company stocks.
