Negotiated Markets
Another type of securities market is a negotiated market. Unlike an auction market, which is facilitated by a single market maker, a negotiated market is created by multiple market makers that post competing bid and ask prices over a computerized network. Orders are filled either automatically, with the computer matching the best quotes first, or by private negotiation. Traditionally, negotiated markets traded mostly in unlisted securities. Today, however, the NASDAQ trades listed securities on a negotiated basis. Thus, the negotiated markets include both the NASDAQ stock exchange and over-the-counter (OTC) markets, such as the Over-the-Counter Bulletin Board (OTCBB) and OTC Link, formerly known as the Pink Sheets.
The NASDAQ exchange consists of three tiers of securities based on initial listing requirements, such as the number of publicly held shares and the issuer’s market capitalization. Once listed, a company must continue to meet a set of less stringent continued listing requirements. The three tiers are:
- 1. NASDAQ Global Select Market, a list of blue chip companies that meet its highest listing requirements
- 2. NASDAQ Global Market, a list of blue chip companies that meet high listing requirements
- 3. NASDAQ Capital Market, a group of smaller, less capitalized companies
The OTC Bulletin Board is an electronic quotation system for OTC equity securities, meaning the OTCBB does not match buyers to sellers or execute transactions; it only posts market maker quotes. It is a dealer system, meaning that only market makers may apply to quote securities on this service.
Because the OTCBB is a quotation service for its market makers and not an issuer listing service or securities exchange, there are no quantitative listing requirements that must be met. However, issuers are required to report their current financial statements to the SEC and other regulators in order to register on the OTCBB. Also, issuers are required