Commentary

Richard Repetto
Traders Magazine Online News

Why Do Exchanges Own Multiple Licenses? It's Not Hard To See, Look at the SEC

In this recent research note, Sandler O'Neill + Partners, L.P. Principal Richard Repetto examines why the public exchange operators hold multiple licenses and that rationale behind this phenomenon.

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May 31, 2003

Nasdaq's Wild West' Cousin

By Peter Chapman

It's no surprise Nasdaq is looking to upgrade its OTC offering. The OTCBB is not profitable, sources say, and it has had a shady reputation.

Indeed, Nasdaq has always taken pains to distance itself from the OTCBB. Its website states: "The OTCBB is a quotation medium for subscribing members, not an issuer listing service, and should not be confused with the Nasdaq Stock Market."

The OTCBB website states, it is "separate and distinct from the Nasdaq Stock Market." That's despite the fact that Nasdaq operates the OTCBB's technology.

The OTCBB is considered by some to be a Wild West of easily manipulated securities, a reputation Nasdaq is determined to avoid. Nasdaq has even reprimanded OTCBB companies for issuing press releases stating their securities trade on "Nasdaq's OTCBB."

The OTCBB is sponsored and regulated by the NASD and operated by Nasdaq. The NASD was largely forced to create the OTCBB in 1990 by the Securities and Exchange Commission. That was following the passage of the Penny Stock Reform Act.

The purpose was to bring transparency to the non-Nasdaq section of the over-the-counter market. Previously, prices could only be found on the pages of the Pink Sheets distributed to dealers. The relative lack of transparency made fraud easier.