Getting your company listed on the stock exchange can help raise public capital for your business. However, if your company is still small, it may not meet the eligibility criteria of major stock exchanges like the National Association of Securities Dealers Automated Quotation (NASDAQ), the New York Stock Exchange (NYSE), and the American Stock Exchange (AMEX). You have the option then of being listed on the penny stock market instead. It will increase your company’s chances of getting listed on the regular stock exchange later.
What is a Penny Stock?
According to the U.S. Securities and Exchange Commission (SEC), penny stocks are securities that small companies offer to potential investors for a low initial price of $5 or less. Penny stocks are also known as microcaps and small caps. The major stock exchanges don’t, generally, list them, but the over the counter bulletin board (OTCBB) will quote them; that is, they will state their last transacted price. There is no fee for getting shares quoted since they are not traded on NASDAQ or the other major stock exchanges.
The National Association of Securities Dealers (NASD) regulates the OTCBB electronic trading service, and the Financial Industry Regulatory Authority (FINRA) operates it. You can trade penny stocks on the over the counter (OTC) markets.
What are the Eligibility Requirements for Getting Listed on the Penny Stock Market?
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You don’t need to fulfill any particular financial criteria or bid price to qualify for being listed with the OTCBB. While federal guidelines may require companies to reveal their financial details when offering their securities to the public, the OTC Market service doesn’t insist that you keep the information updated. However, it requires you to have at least one market maker and SEC registration.
Who Are Market Makers?
As the business owner, you can’t list your company in the OTC Markets by yourself. Instead, you must engage the services of market makers to aid you in getting listed. All stockbrokers don’t sponsor penny stock securities, so check with the OTC Market services to find the ones that do.
To get your company listed, the market maker will file Form 211 from FINRA with the OTC Market services, under the requirements of FINRA Rule 6432 and Securities Exchange Act (SEA) Rule 15c2-11. If your company must report to the SEC, it is necessary to include a recent company brochure and annual business report with Form 211. If the SEC has exempted your company from reporting, it will suffice to merely fill in your company description, products or services, and employed officers.
Market makers pay $6 per security per month for all the securities that they quote on the OTCBB. You are not supposed to pay them for sponsoring the company’s penny stock. So, they earn their cut from the difference between what people bid and the asking price on the OTCBB.
How Will Investors Trade Your OTC Securities?
They will do their buying and selling through a trading account and a broker, and your market maker will act on your behalf. Depending on your company’s perceived future value, your penny stocks could be an attractive, profitable investment. Investors could buy a large number of your company’s shares at low prices and end up making a profit if you be