Historians will recall 2022 as a mostly tumultuous year for the financial markets, and a great deal of attention was given to the oscilloscope-worthy gyrations of the New York Stock Exchange and NASDAQ, the cratering of the cryptocurrency market and the upheaval in the commodities markets.
Somewhat overlooked during this period was the Over-the-Counter (OTC) market. This sector of the financial services world rarely attracts the attention of the mainstream financial media, and many people choose not to pay attention to the OTC market because they have the mistaken belief of what this sector is all about.
“It”™s either the beginning or the end of a lot of companies,” explained Nicholas Coriano, managing partner of the Shelton-based financial consultancy Cervitude and vice president of East Coast operations at 3DX Industries Inc., which is traded as OTC:DDDX. “It”™s one of the smaller exchanges ”” it”™s where companies start to raise capital or if they trade on the New York Stock Exchange or NASDAQ and they do not meet the requirements there, they get bumped down to the OTC markets.”
Coriano pointed out that some people mistake the OTC market for penny stocks ”” he noted that the “legal definition of a penny stock is any stock under $5, so they don”™t all live on the OTC markets.” He also observed that many major foreign company prefer to have their U.S. presence in an OTC setting because “the fees are significantly less than the New York Stock Exchange and the NASDAQ” ”” major global firms such as Volkswagen, LVMH and Nissan Motor Co. are represented stateside in this sector. Also, there is more than one OTC market.
“The OTC Pink Current has the least amount of financial disclosures, regulatory disclosures and filing fees for the company, so you”™ll find the startups in the OTC Pink Current,” he said. “A little bit more established companies are in the OTC QB, and then fully audited financials and minimum dollar stock prices are on the OTC QX. You can go to OTCmarkets.com and they have a full listing there, and they have a search feature that allows you to search the companies by market cap, by price, by what state or country they”™re in, by what sector they”™re in ”” and the analysis is very similar to any other public company investment or any other stock investment.”
In comparison to the other stock markets, Coriano stated the OTC markets mirrored the NYSE and NASDAQ experience in 2022.
“They had a rough year, and I think it came off of the back of 2021,” he said. “In 2021, we saw a black swan event in Covid and one of the few times in history where you”™ll see the simultaneous printing of money and the stock market going up. So, we went on a massive bull run in all markets and 2021, and all markets in 2022 kind of pulled back ”” the OTC didn”™t really act too much differently, with the exception of smaller volume liquidity.”
In his work with 3DX Industries, Coriano has been responsible for attracting the interest of investors into his OTC company.
“It”™s not any different than attracting an investor to any other company,” he said. “You want to have strong fundamentals, a good cap structure in the sense that you”™re not you”™re not offering a 10% stake in a billion-dollar company that makes $1. The one challenge I find is that people don”™t necessarily know what the OTC markets are, so explaining that to them and getting them to understand that it”™s a trading platform similar to the New York Stock Exchange and NASDAQ would be the biggest challenge. But other than that, I think the challenge is something that private equity faces, explaining the value proposition of the company in a way that makes sense.”
“But the one challenge I have run into is getting people to understand exactly what the OTC markets are because it”™s not on Fox News or on CNBC,” he added. “People just don”™t have the experience or the knowledge of what it is, so that”™s probably the one thing that has been a challenge.”
