Below is an introduction to the world of over-the-counter (OTC) and unlisted securities

Our two 2005 books between them contain a lineup of 1,000 public companies.   They come in all types and sizes:  inactive stocks, community banks, and micro-cap stocks.   But there is a common thread between many of the members of this otherwise diverse population that sets them apart—they are not followed by Wall Street.

Walker's Manuals focuses primarily on companies that are quoted on the OTC Bulletin Board (OTCBB) or in the Pink Sheets—these are all unlisted companies, and their stocks trade over-the-counter. Other unlisted companies quietly hover outside of even the over-the-counter marketplace, their stock trading only infrequently through private placements. If you're confused as to which companies are listed or unlisted, whose stock trades over-the-counter, what it means to be public, why companies are reporting or non-reporting, or what that even means, join the crowd and read on:

Most people think of publicly traded as referring only to companies listed on the New York Stock Exchange (NYSE), the American Stock Exchange (AMEX), or the National Association of Securities Dealers Automated Quotation System (NASDAQ). But plenty of companies that are not listed on these or any other exchange are still public. Quite simply, when a company's securities have been sold in a public sale by the company or its shareholders, those securities qualify as being publicly held. When shares have been issued and trading is taking place, regardless of what type of offering was initially made, the shares are now considered publicly traded.

Once a company is public, their shares may or may not trade on a stock exchange—that is, they may be listed or unlisted. Many, many public companies are not listed. Why? For one thing, exchanges require companies that desire to be listed to meet a number of criteria regarding:

• Asset Base
• Number of shares that are publicly traded
• Total market value of the shares traded, also known as market capitalization

Assuming that a given company meets those requirements, management may wish to avoid listing for the time being. The increase in stock price that may come as a result of being listed has its own cost:

• Listing fees and expenses are very substantial.
• Exposure to increased public scrutiny of management's decisions is sure to follow.
• Interference by outside investors is much more likely.

And then there's the Securities and Exchange Commission (SEC). All public offerings are regulated by one or more state and federal agencies, depending on the particulars of the offering. Under the Securities Act of 1933, new issues of securities offered for interstate sale in the United States must be registered, usually in advance, with the SEC. It makes no difference whether or not a company is or desires to be listed on a stock exchange. But once a company's shares are trading publicly, the decision of whether or not to list the company on, for example, the NYSE, comes at an additional regulatory price: the Securities Exchange Act of 1934 requires all listed companies to register with and report regularly to the SEC, even if they make no new public offering.

So, many companies choose not to list with a stock exchange at a particular point in their development. Management of those companies can remain responsible to their shareholders in the meantime by ensuring that there is an alternative marketplace for the company's shares. Most shareholders prefer to have the opportunity to easily realize the value of an investment whenever they wish to do so. The over-the-counter marketplace provides a shareholder just such a framework for trading their unlisted stocks.