largest of all securities markets because of the large quantities of debt
securities traded in it. U.S.
government securities (which alone make up the biggest
of all sectoral markets), issues of states, countries and municipalities
and most corporate bonds are traded over the counter, by dealers making
markets in such securities. The
total value of debt instruments traded in this fashion in a year in the
in this market are subject to monitoring and on-site inspection and examination
by the National Association of Securities Dealers, Inc.
The NASD is the self-regulatory organization for the over-the-counter
market, operating under the oversight of the Securities and Exchange Commission.
Congress, by the Securities Acts Amendments of 1985, assigned the
NASD the responsibility for examining dealers in municipal securities
for their compliance with federal securities laws and the rules of the
Municipal Securities Rule-making Board.
In 1986, Congress passed the Government Securities Act, which gave
the NASD the further responsibility of monitoring, inspecting and examining
firms dealing in government securities.
corporate bonds are listed for trading on the New York Exchange.
However, it is generally understood that the exchange trading volume
in such bonds is a minuscule percentage of that done by over-the-counter
issues listed on stock exchanges are traded over-the-counter in the so-called
third market. While exchange
member firms are forbidden by exchange rules from trading lists stocks
off the floors of the exchanges, firms not belonging to the exchanges
are under no such prohibition. A
number of non-exchange member firms specialize in off-board block transactions.
are also an estimated 11,000 other equity securities traded over-the-counter,
issues that generally are too small to qualify for inclusion in the computerized
NASDAQ market or for listing on an exchange.
These issues continue to be traded with the aid of the "pink sheets,"
daily bulletins that indicate which firms make markets in these stocks
but seldom quote bid and asked prices.
The aggregate share and dollar volume in these securities is very
small, compared to the NASDAQ.
SEC has recently become concerned about the regulation of this non-NASDAQ
market, and has asked the NASD to become more active in it.
Accordingly, the NASD is requesting dealers in non-NASDAQ securities
to report their trading activity to the NASD by electronic means.
This permits the market surveillance department of the NASD to
capture non-NASDAQ trade data and to analyze them for possible instances
of wrongdoing. The NASD has
also built an electronic bulletin board display service, which makes the
non-NASDAQ trade data available to registered dealers.
This provides the dealers and their customers with better information
on the non-NASDAQ market, and introduces into it some of the orderliness
that the NASD's automated NASDAQ system provides to the NASDAQ market.
J.O. The Individual Investor's
Guide to OTC Stocks, 1989. OTC Chart Manual.
Standard and Poor's Corp.,
OTC Chart Manual.
Standard and Poor's Corp.,