Overview
You can trade select over-the-counter (OTC) securities in a non-registered self-directed investing account.
Over-the-counter (OTC) securities refer to financial instruments (stocks, bonds, derivatives, or other securities) that are not traded on a centralized stock exchange like the TSX, NYSE, NASDAQ, and more. Instead, OTC securities are traded directly between two parties, typically through a network of dealers or brokers outside of traditional exchanges.
It's important to understand the risks and considerations associated with trading OTC securities. Before you trade OTC securities, we recommend reviewing the associated risks.
Trading OTC securities through Wealthsimple
You can trade OTC securities like any other security Wealthsimple supports. You'll see an OTC label on eligible securities when you search for them. You can review the steps to buy a stock for more information.
Supported OTC security tiers
Wealthsimple Investments Inc. (WSII) currently only supports trading a limited number of stocks which trade OTC in the United States. We reserve the right to add or remove support for OTC securities at any time.
We will review support for OTC securities based on multiple factors, including the volume or liquidity in the OTC security and the public market (or "tier") on which it trades.
We may be unable to support trades for OTC securities if its tier changes. If this happens, we'll mark these securities as sell only for a period of time. Eventually, we'll remove them from the Wealthsimple platform.
OTC tiers (market groups)
OTC Markets Group, Inc. ("OTC Markets Group") is a company based in the United States which operates "public markets" for OTC securities by allowing U.S. broker-dealers to quote and trade in OTC securities, facilitating price discovery and liquidity. OTC Markets Group categorizes the securities which trade OTC on their public markets based on the issuer's financial and corporate governance standards, disclosure practices and compliance with U.S. securities laws.
OTCQX: The OTCQX Best Market is for established, investor-focused U.S. and international companies. To qualify for the OTCQX market, companies must meet high financial standards, follow best practice corporate governance, demonstrate compliance with U.S. securities laws and be current in their disclosure. Penny stocks, shells and companies in bankruptcy cannot qualify for OTCQX. The companies found on OTCQX are distinguished by the integrity of their operations and the diligence with which they convey their qualifications.
OTCQB: The OTCQB Venture Market is for entrepreneurial and development stage U.S. and international companies. To be eligible, companies must be current in their reporting and undergo an annual verification and management certification process. Companies must meet a $0.01 bid test and may not be in bankruptcy.
PINK Open Market: provides brokers with a regulated platform for transparent trading and best execution. A wide spectrum of companies trade here: from smaller or start-up businesses to large multinationals.
- Pink Current companies make more fulsome disclosure, including quarterly or interim filings.
- Pink Limited companies meetthe minimum disclosure requirements of Rule 15c2-11.
Expert: OTC Markets Group currently operates the Expert Market as a distinct market tier for a small number of companies. Quotations in Expert Market securities are restricted from public viewing. Only broker-dealers and professional or sophisticated investors are permitted to view quotations in Expert Market securities.
Grey Market: The Grey Market is an opaque market where broker-dealers are not willing or able to publicly quote OTC securities given the lack of investor interest, company information or regulatory compliance.
Frequently asked questions
Why do securities trade on the OTC market?
There are a few reasons companies list their securities on the OTC markets. Below are some common reasons:
- Smaller companies that do not meet exchange listing requirements.
- Cost-effectiveness for companies seeking lower listing and reporting fees.
- Foreign companies seeking access to U.S. investors without the regulatory burden of major exchanges.
- Early-stage companies that require a flexible platform to raise capital.
- Penny stocks and highly speculative investments that don't meet major exchange standards.
- Limited reporting requirements which appeal to companies that want less regulatory scrutiny.
- Delisted stocks: companies that fail to meet major exchange's listing requirements.
Are OTC securities available to trade during extended hours?
No.
Why am I receiving an error message when I submit my order?
You may be receiving an error message if:
- You are attempting to trade an OTC security within a registered account.
- You are placing a market or stop limit order for an OTC security.
- You're attempting to trade an OTC security under a Cease Trade Order.
You can only place a limit order for OTC securities in a non-registered account.
Can I transfer OTC securities held with another institution to Wealthsimple?
You can't transfer OTC securities to Wealthsimple at this time. This functionality is coming soon.
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