Don’t Be Pound Foolish

Which US Equity Market has the largest number of securities NOT considered Penny Stocks according to SEC Rule 3a51-1? Based on the location of this post, you should be able to guess…. but that should make it no less surprising.  The numbers speak for themselves:

Number of Non-Penny Stocks*:

  • OTC Markets: 3,188
  • NYSE: 3,175
  • Nasdaq: 3,170

*Data as of 9/30/16

While this may cause some to do a double-take, the data is totally rational to those who have followed the OTC Market over the past 10 years.  A number of key developments have made OTC Markets the market of choice for quality international and U.S issuers:

  • The growth and maturation of the OTCQX Best Market and OTCQB Venture Market has created a cost-effective alternative to listing on a National Securities exchange. A recent independent study by Oxford Metrica found that companies experienced a 53% increase in trading volume and a 57% increase in dollar volume on average six months after joining OTCQX.   In addition, beginning in 2017 OTCQX will have an ongoing ‘No Penny Stock’ rule.
  • The increasing cost and complexity of exchange listings. One recent study cited that the average yearly cost to stay public on an exchange is upwards of $1.5 million.**
  • SEC amendments to Rule 12(G) which led to the creation of more Level 1 Sponsored and Unsponsored ADRS, as well as deregistration and delisting of many large ADRs.
  • Increased investor demand and lower clearing costs to trade foreign ordinary shares in U.S. dollars, especially those listed on Canadian markets.
  • The impact of the JOBS Act on the small cap marketplace. Shareholder threshold changes due to the JOBS act have fueled an influx of community and regional banks to OTCQX while the new Reg A/Crowdfunding ruleset is upending capital raising at the venture end of the marketplace.
  • The increasing transparency, efficiency and accessibility of OTC data and OTC trading. OTC Markets data is now ubiquitous within online brokerages and major financial data distributors.  Our markets and compliance information is becoming the benchmark for broker-dealer compliance departments.

Let’s dig a little deeper into the data behind the 3,188 non-penny stocks in the OTC Market.


  • International: 1,745 (54.7%)
  • Domestic: 1,443 (45.2%)

Security Type:

  • Common Stock: 1,176 (36.8%)
  • Foreign Ordinary: 915 (28.7%)
  • ADR: 808 (25.3%)

Market Capitalization:

  • > 1 Billion: 1,103 (34.5%)
  • 500M – 1 Billion: 131 (4.2%)
  • 250M – 500 M: 106 (3.4%)

From a compliance perspective, it is also important to understand the exemptions within the ‘Penny Stock Rule’ and how the data on these exemptions may be used as another proxy for quality.  There are three primary exemptions for OTC securities within the Penny Stock Rule: the Price Exemption, the Net Tangible Asset Exemption and the Average Revenue Exemption.  Most people are familiar with the $5.00 Price Exemption (which is based on bid price NOT last sale); however, the other two exemptions are often overlooked.  The NTA Exemption notes that companies in operation for at least three years with NTA greater than $2MM and companies in operation for less than three years with NTA greater than $5 MM are not Penny Stocks.  The Average Revenue exemption removes the ‘Penny Stock’ label for companies with an average revenue of $6MM over the past three years.

These three exemptions and a company’s status for each provide a much more comprehensive view of the issuer.  Firms relying only on the price exemption are subject to market fluctuations (both positive and negative) setting a company’s ‘Penny Stock’ status.

Exemption Data for OTCQX and OTCQB Companies***:

  • Companies with all 3 Exemptions: 195 out of 782 (24.9%)
  • Companies with 2 Exemptions: 340 out of 782 (43.4%)
  • Companies with only the Price Exemption: 277 out of 782 (35.4%)

By understanding this data within the context of the OTC Market, firms can create robust, data driven compliance processes.  Then maybe it will not be so surprising where the most Non Penny Stocks trade.



**IPO Task Force, “Rebuilding the IPO On-Ramp”, Presented to the U.S. Department of Treasury

***Financial information for OTC Pink issuers is often not available.

Matthew Fuchs, EVP of Market Data, leads the product development, distribution and sales of market data at OTC Markets Group. Prior to joining OTC Markets Group, he served in a number of financial technology roles at the National Research Exchange, Bearing Point and Arthur Andersen. Matt received a BA from Columbia University

%d bloggers like this: