Not every American stock trades on an exchange. A large number change hands over the counter, through a dealer-based quotation system with different rules about disclosure and access.
Listing standards are a filter
National exchanges impose quantitative and qualitative requirements: minimum share price, market value, shareholder counts, governance structures and ongoing reporting obligations.
A company that never met those standards, or that fell below them and was delisted, can still have its shares traded elsewhere. Trading and listing are separate concepts.
Companies also arrive over the counter by choice, including foreign issuers whose primary listing sits abroad and that decline the cost of a domestic listing.
Quotation systems replace a central order book
Over-the-counter shares trade through systems where broker-dealers publish quotes. Trades are negotiated between dealers rather than matched in a single consolidated book.
Operators of these systems organize securities into tiers based on the quality and currency of the information the issuer makes available. The tier signals disclosure, not merit or valuation.
The upper tiers require current financial reporting; lower ones may include companies providing little or nothing, and are labeled accordingly.
Disclosure obligations vary by why a company is there
Some over-the-counter companies file with the Securities and Exchange Commission and provide the same periodic reports as listed firms. Their shares simply are not listed.
Others rely on alternative disclosure arrangements or provide no ongoing information at all. An investor's ability to analyze the business varies enormously across the same marketplace.
Foreign issuers frequently satisfy requirements by making home-market disclosures available, which may follow different accounting standards.
Liquidity and spreads behave differently
Many of these securities trade infrequently, sometimes with long intervals between transactions. Quoted spreads are typically wider than on listed stocks, reflecting dealer risk in holding inventory.
Thin volume means a modest order can move the quoted price, and the price of the last trade may not reflect what is currently obtainable.
Brokerages often impose additional restrictions on these securities, including limits on order types and required acknowledgments before trading.
Regulation focuses on information and promotion
Rules require a broker-dealer to review current issuer information before publishing a quotation, which pushes companies toward maintaining disclosure if they want quoted markets.
Because thin markets and limited information create conditions favorable to manipulation, regulators devote attention to promotional campaigns and can suspend trading in a security.
The structural point is that the over-the-counter market is a different venue with different information, not a discount version of an exchange.