Modern OTC market structure and liquidity: The tale of three tiers

Ryan Davis, Todd Griffith, Bonnie Van Ness and Robert Van Ness

Journal of Financial Markets, 2023, vol. 64, issue C

Abstract: OTC Markets Group organizes stocks that trade over-the-counter (OTC) into three marketplaces (OTCQX, OTCQB, and Pink) based on firm quality and disclosure practices. We examine trading within these tiers and find that stocks in higher tiers are more liquid than stocks in lower tiers. After a series of difference-in-differences tests comparing a matched sample of stocks that change tiers, we find that liquidity improves (deteriorates) for stocks moving up (down) the tiered market structure, suggesting that the tier designations resolve uncertainty and increase firm visibility. Our results show that liquidity differences between tiers is attributable to OTC market structure.

Keywords: OTC Markets; Liquidity; Tiered market structure (search for similar items in EconPapers)
JEL-codes: G10 G14 G15 (search for similar items in EconPapers)
Date: 2023
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Persistent link: https://EconPapers.repec.org/RePEc:eee:finmar:v:64:y:2023:i:c:s1386418123000137

DOI: 10.1016/j.finmar.2023.100815

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