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The amount of information an issuer must disclose about a company before she may legally offer shares to the public depends on where the stock is listed. With some exceptions, to be legally offered or sold, a security must be registered with the SEC. Generally, the security is listed either on a stock exchange or on the over the counter (OTC) market. There are eight stock exchanges registered with the SEC, each with similar requirements for listing and each centrally traded on an exchange floor. The New York Stock Exchange (NYSE) is the largest of the eight with an average daily dollar volume of $22 billion.

If a stock is not traded on an exchange, it trades in the OTC market, a widespread aggregation of dealers who make markets in many different securities. Rather than trading in one centralized location, OTC trading occurs through electronic negotiations between buyers and sellers. A subsidiary of the National Association of Securities Dealers, Inc. (NASD) regulates the OTC market. NASD also runs NASDAQ, which handles most of the quotations for OTC securities. Because most of the high-tech securities are listed on NASDAQ and because NASDAQ automates its own order routing and execution functions, it has recently experienced significant growth—now with a trading volume of over 74.3 billion, with a value in excess of $1.45 trillion.

If a publicly traded company does not meet NASDAQ or exchange listing requirements, it is simply bought and sold over-the-counter, and published by the computerized OTC Bulletin Board, operated by NASDAQ. These OTC companies are not subject to financial reporting or disclosure requirements prior to inclusion on the OTC Bulletin Board, therefore it is difficult for investors to obtain reliable information on the issuer, its business, or the particular securities issue. Thus, OTC stocks are a frequent subject for stock manipulators.

In addition to stock exchanges and the NASDAQ, a few Internet-based securities trading systems have also received SEC approval, thus allowing a forum for investor interaction. These forums allow trading without the use of brokers-dealers, thus eliminating fees and attracting corporate issuers who experience low trading volume in traditional securities markets. To date, the SEC regulates these systems on a case-by case basis.

State securities law are commonly known as Blue Sky Laws.


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