The Twilight Zone: OTC Regulatory Regimes and Market Quality

More than 8,000 domestic equity securities were publicly traded in the U.S. over-the-counter (OTC) market in 2010.  Yet, research studying this market is limited.  On the one hand, the OTC market attracts stocks of firms that tend to be small and growing.  On the other hand, it generally offers investors less protection than the traditional exchanges do, and fraudulent and abusive practices in this market can cause significant economic harm to investors.  Thus, the OTC market illustrates the trade-off that securities regulators face between ensuring investor protection and creating a viable market for small growth firms.  This trade-off has come … Read more