FINRA, the “Pink Sheets” and the OTC Market
A proposal by The Financial Industry Regulatory Authority (FINRA) to expand its business of collecting and disseminating quotes in over-the-counter equities
by creating a quotation consolidation facility (QCF) is causing a major uproar generating the exit of OTC dealers to the Pink OTC (Pink Sheets) Markets, the dominant collector and distributor of OTC quotes.
The complaints have been rising over why a company trades on the Pink Sheets versus having traded on the OTCBB. The issue is the $4 per security per month fee levied on dealers. Dealers are so upset over the $4 per security per month fee; it has caused the decline in FINRA’s OTCBB business and the “Pink Sheets” to execute the majority of trades.
The question is … “Why, as a dealer, should they pay an inflated price to a regulatory body to do something that is already being done? FINRA already collects some quotes from dealers for distribution over the feed. Thus, most of the OTC dealers have exited the FINRA controlled “exchange” while those firms that remain are employing fewer traders.
The issue is should the QCF would be operated by FINRA and collect from dealers or their agents for all top-of-books OTC quote? At one time, OTCBB had 100 % of the business, but Pink Quote, introduced by Pink OTC in 2000 has come to dominate. The FINRA service has lost 1/2 of its quote positions in the last 2 years as dealers abandon for “Pink Sheets” platform. The decline in FINRA’s OTCBB business is behind the regulator’s decision to require dealers to deliver to it their quotes. Recent defectors have been E*Trade, Citi, StockCross and more.
The situation has become so dire that FINRA has put “OTCBB” up for sale; thus, the fees to achieve a better market price. But, the proposal requires SEC approval. (HWM from an article from P Chapman)
