An OTC market is a type of marketplace where instruments are traded directly between two parties, rather than on a stock exchange or via a market maker. On Lightyear, only stocks that have gone through a specific type of corporate action may be sellable OTC, and in such cases, you can’t increase your current position in these instruments anymore.
We encourage you to review your portfolio and consider any actions you may want to take when you see that an instrument in your portfolio has gone through a corporate action and moved to the OTC market. If unsure, it may be worth speaking to a licensed professional advisor.
Why is a stock sellable on the OTC market?
You may need to sell on the OTC market in some scenarios where a stock you hold has gone through a specific corporate action:
Spin-off
Should you receive stocks of a company that was created through a spin-off and that new instrument is not traded on any exchange, it may move to the OTC market. Read more about this corporate action here: What is a spin-off?
Delisting
When a stock is delisted from an exchange, it means that it can no longer be traded on that specific exchange. As a result of some delistings, to provide a way for investors to continue trading these delisted stocks for some time, they may move to the OTC market. Read more about this corporate action here: What is delisting?
How do I know if the stock I own is sellable OTC?
Once Lightyear is provided with information about the specific corporate action, we leave a notice on that instrument in the app. We may also update this notice if changes occur as more information is provided to us, but strongly advise stockholders to keep an eye on the development of the event independently, directly from official sources. Lightyear strives to also send you an email about any corporate actions, however, please note that the email may not always be sent before the event.
How can I sell my stock that is on the OTC market?
If the instrument you hold is trading on the OTC market, you should be aware that selling OTC may be more difficult as there is often less liquidity, meaning fewer counterparties are buying and selling stocks. This can result in prices shown to you reflecting the last known traded value (what Lightyear displays) not accurately indicating the price at which the stock will currently trade for. The same best execution rules apply to trading OTC as for common stock, however, be aware that spreads could be higher and liquidity could be lower.
It’s important to note that selling on the OTC may generally require resubmitting your orders, changing your order type, or modifying order parameters to improve execution chances, therefore you may need to consider between types of orders you place to sell your stock. However, if there are any requirements regarding the type of order or parameters that can be used, we will update the notice with instructions as soon as we receive the relevant information.
- Using limit orders may be more likely to fill when trading OTC, as these instructions persist even if liquidity is not immediately available. It’s important to note that stocks traded on OTC are often more volatile, meaning you may need to review the price you set your limit order to if it doesn’t fill. On Lightyear, you cannot update the limit price you set, which means you need to cancel your pending order and resubmit it if you want to make any changes.
- Using market orders may increase the likelihood your order will be executed fast, with the latest available price. However, as there are fewer counterparties than on a stock exchange, your order has a higher chance of not filling and being rejected. The fill price may also significantly differ from the last known trading price due to increased volatility.
- Sometimes selling your stocks can depend on the amount you plan to sell. This typically happens when the stock is sellable on the OTC “Expert Market”. Requirements for this market are that a whole share order should be placed only via a limit order and a fraction of a share order should be placed using a market order.