A stock market is a market where buyers and sellers of stock (company shares) come together to carry out trades. Today, the most well-known stock markets are the stock exchanges, such as the New York Stock Exchange, the London Stock Exchange, NASDAQ, Euronext, the Shanghai Stock Exchange, the Tokyo Stock Exchange, and Deutsche Börse.
When company shares are traded on a stock market that do not fulfil the requirements of a stock exchange, it is known as over-the-counter trading (OTC). Compared to stock exchanges, OTC markets tend to be less transparent and subject to fewer regulations; both external regulations (such as laws) and internal regulations.
By the end of 2019, the total market capitalization of equity backed securities worldwide exceeded 70 trillion USD. Back in 1980, it was “only” 2.5 trillion USD.
At the time of writing, there are approximately 60 stock exchanges in the world. Including all stock markets within a country, the countries with the largest stock markets by market capitalization are the United States, Japan and China. The United States accounts for more than 55% of the total capitalization, Japan for less than 7.5% and China for less than 5.5%.
A stock exchange, also known as a bourse, typically have very stringent requirements for the stock companies listed on the exchange, and trading on the exchange is restricted to broker who are members of the exchange.
The world´s largest stock exchanges (by market capitalization)
New York Stock Exchange (NYSE). Market place: New York City. Region: United States of America.
Nasdaq (NASDAQ). Market place: New York City. Region: United States of America.
Shanghai Stock Exchange. Market place: Shanghai. Region: China.
Euronext. Market place: Amsterdam, Brussels, Dublin, Lisbon, Milan, Oslo, Paris. Region: Europe.
Japan Exchange Group. Market place: Tokyo, Osaka. Region: Japan.
Hong Kong Stock Exchange. Market place: Hong Kong. Region: Hong Kong.
Shenzhen Stock Exchange. Market place: Shenzhen. Region: China.
London Stock Exchange. Market place: London. Region: United Kingdom.
Bombay Stock Exchange. Market place: Mumbai. Region: India
National Stock Exchange of India. Market place: Mumbai. Region: India
OTC stock markets
Over-the-counter trading is a heterogeneous field that encompasses everything from huge and well-established stock markets (that are not stock exchanges) to privately arranged party-to-party stock deals, and the buyers and sellers span from novice micro-investors to seasoned professionals with access to vast amounts of capital.
Three examples of well-established networks for OTC trading are OTC Pink, OTCQB and OTCQX, which are all owned and operated by the OTC Markets Group.
OTC Pink is a massive, open market network where trading is operated and facilitated by the OTC Markets Group. Historically, the stock prices were distributed on pink paper once a day, hence the name.
OTC Markets Group do not impose any particularly stringent rules for companies that wish to be traded at OTC Pink, but quotes must be obtained from a broker-dealer registered with the United States Financial Industry Regulatory Authority (FINRA). There is not requirement for the companies to file with the United States Securities and Exchange Commission (SEC). Instead, they provide as much or little information to the market participants as they wish to.
OTCQB is also owned and operated by the OTC Markets Group, but the requirements are a bit more difficult to meet than for OTC Pink. OTC Markets Group designed OTCQB to be a venture market for companies that are small but growing. Only companies that meet the minimum $0.01 bid price test can be listed here, and they must provide certain company information and undergo yearly verification. Many of the companies report to SEC or to the Federal Deposit Insurance Corporation (FDIC) , but there is no such requirement.
The OTCQX was designed to be the top-tier for the OTC Market Group, and companies are subject to much stricter disclosure requirements than for OTC Pink and OTCQB. Still, it is not a stock exchange – and this is important to keep in mind. Trades are private and decentralized.
One of the listing requirements for OTCQX is to hold sponsorship from a third-party financial advisor.