What Are Microcap Securities?
The term “microcap” in this case applies to small public companies with low or “micro” capitalizations with securities quoted on the OTC Bulletin Board (OTCBB) or over the counter markets.
Whereas, the Wall Street definition of “microcap” would include public companies with a market capitalization of less than $250 million, most over the counter companies have market caps of less than $50 million, and development stage Issuers typically have few assets and limited operations.
While many microcap companies that meet the eligibility requirements are successful in becoming listed on the NASDAQ or NYSE MKT (formerly AMEX) exchanges, most are quoted in the OTC marketplace regardless of size.
Microcap stocks tend to be priced below $5 and are often termed “penny stocks” though that description does not fit many over the counter stocks. Some microcap companies trade heavily and are household names, while others are little known outside of the penny stock space and trade in low volumes.
Where Do Microcap Securities Trade?
Most microcap securities trade in the “over-the-counter” (OTC) market. Their securities are not “listed” on a national exchange like the NYSE or NASDAQ, but are instead quoted via online quotation service. As a practical matter, if an OTC issuer has liquidity, their securities can be deposited with only a few brokers that specialize in OTCBB and over the counter securities, though most trading platforms will carry quotations for microcap securities, as well.