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SSRN
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The Twilight Zone: OTC Regulatory Regimes and Market Quality

SSRN Electronic Journal
2017
  • 9
    Citations
  • 19,589
    Usage
  • 7
    Captures
  • 4
    Mentions
  • 0
    Social Media
Metric Options:   Counts1 Year3 Year

Metrics Details

  • Citations
    9
    • Citation Indexes
      6
    • Policy Citations
      3
      • Policy Citation
        3
  • Usage
    19,589
    • Abstract Views
      18,227
    • Downloads
      1,362
  • Captures
    7
  • Mentions
    4
    • News Mentions
      3
      • News
        3
    • Blog Mentions
      1
      • Blog
        1
  • Ratings
    • Download Rank
      29,356

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Article Description

We analyze a comprehensive sample of more than 10,000 U.S. OTC stocks. We first show that the OTC market is a large, diverse, and dynamic trading environment with a rich set of regulatory and disclosure regimes, comprising venue rules and state laws beyond SEC regulation. We then exploit this institutional richness to analyze two key dimensions of market quality, liquidity and crash risk, across firms and regulatory regimes. We find that OTC firms that are subject to stricter regulatory regimes and disclosure requirements have higher market quality (higher liquidity and lower crash risk). Our analysis points to an important trade-off in regulating the OTC market and protecting investors: Lowering regulatory requirements (e.g., for disclosure) reduces the compliance burden for smaller firms, but it also reduces market quality.

Bibliographic Details

Ulf Brüggemann; Aditya Kaul; Christian Leuz; Ingrid M. Werner

Elsevier BV

Securities Regulation; Disclosure; Liquidity; Crash Risk; Blue Sky Laws; Pink Sheets; Bulletin Board; JOBS Act

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