McGonigle's quandary raises a good question for others
considering public ownership: Should you wait until you meet the
requirements of the Nasdaq's so-called SmallCap Market or
National Market System before going public? Or can you survive and
prosper on the OTC Bulletin Board?
The answer is that the Bulletin Board might be an ideal proving
ground, but ultimately, entrepreneurs who want to create an
embarrassing horde of riches will have to move up in the world.
To understand why this is so, entrepreneurs must first
understand a little bit more about the structure of the
Over-The-Counter market. In general, it's divided into four
tiers. The first three tiers--the Nasdaq National Market, the
Nasdaq SmallCap Market and the OTC Bulletin Board--have automated
quotation (the "aq" in Nasdaq) and execution systems that
are owned and operated by The Nasdaq Stock Market Inc. Nasdaq, in
turn, is owned by the National Association of Securities Dealers
Inc. (NASD), which is the self-regulating body established by the
securities industry to avoid direct regulation by the feds. Got
that? (The fourth tier of the Over-The-Counter market has no
automated distribution of quotes, and trading information for
companies that trade at that level can be found only in a
publication known as the Pink Sheets, giving rise to the name
"the Pink Sheet market.")
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The Nasdaq National Market is where the Intels, Microsofts and
Ciscos of the world trade. The SmallCap market attracts
up-and-comers--all of whom are grooming themselves to move up to
the Nasdaq National Market. The OTC Bulletin Board was formed in
1990 to give companies that could not trade on the SmallCap Market
or the National Market (because of their size or because their
shares were not registered under certain U.S. Securities and
Exchange Commission laws) a market to trade on with automated
quotation, trading and visibility among investors, according to
Nasdaq's Wayne Lee.
It shouldn't be surprising that the major brokerage firms
focus most of their attention on the upper tiers of the OTC market.
This reality creates significant challenges for the denizens of the
lower tiers, as described below.
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