Broker Dealers & OTC Market Companies

According to the OTC Markets, Inc’s website, FINRA registered broker-dealers may participate in the market representing client orders and acting as market makers. Broker-dealers may earn revenues from commissions charged on orders or from internalizing transactions. A market maker stands firm to execute orders at their published quotation and may invest its own capital to provide liquidity to an order. Market makers are also obligated to display eligible limit orders that are not marketable and provide best execution for customer orders. (see FINRA Rule 5310 on Best Execution and Interpositioning.) ‘Best Execution’ and other customer protection rules are discussed in more detail in Part 3 – Regulation.

The OTC Link ATS allows broker-dealers trading OTCQX, OTCQB and Pink securities to communicate and trade directly with one another. In order to notify other broker-dealers that they are willing to trade an OTC security at a particular price, broker-dealers post their quotes on OTC Link ATS. The aggregation and ranking of these quotes defines the market for a security, and the consolidation of the market’s highest ‘bid’ (purchase price) and lowest ‘ask or offer’ (sale price) becomes the ‘inside market.’

If a broker-dealer decides to trade a security, they can communicate with other broker-dealer(s), using OTC Link® ATS — OTC Markets Group’s electronic messaging and trade negotiation system — or they may contact the broker-dealer through other means of communication and negotiate the trade.

To see a full list of Broker Dealers authorized to do business with OTC Companies, see the OTC Market’s Broker Dealer Directory by clicking here.

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