Tag Archives: Market Maker

What are Bid and Ask Prices?

Companies with the goal to go public on the OTC Markets are ultimately looking for their stock to trade.  In the over-the-counter markets,  the most basic terms to understand are the “bid” and “ask.”

What is the Bid?

The “bid” is the highest price a Market Maker will pay to purchase a specific number of shares of stock.  For instance, on a penny stock, a Market Maker may quote a bid of $0.05 and a size of 10,000, meaning that you can sell up to 10,000 shares to the Market Maker at five cents a share.

What is the Ask?

The “ask” is the lowest price at which a Market Maker will sell a specific number of shares of stock.  The ask price is also known as the “offer” price.  The ask price is almost always higher than the bid price.  For example, on the same penny stock, the Market Maker may quote an ask of $0.06 and a size of 20,000, meaning that you can buy up to 20,000 shares from the Market Maker at six cents a share.

What is the Spread?

The spread is the difference between the bid and the ask price.  In the example above, the spread is $0.01.  Market makers make money on the difference between the bid price and the ask price.

In thinly traded markets where volume in a microcap stock is very low, the spread is higher.  When trading volume increases, more shares are bought and sold so a Market Maker will decrease the spread to encourage more volume.  Eventually, multiple Market Makers compete for business by constantly adjusting their bid and ask prices to facilitate trading.

What is the Role of a Market Maker Under Rule 15c2-11?

Market Makers File Form 211 With FINRA

If a private company is using Rule 15c2-11 to become public, the company first needs a relationship with a sponsoring Market Maker that can file the Form 211 application with FINRA.   An experienced securities attorney works with several Market Makers and can recommend one willing to offer sponsorship.

Just as the SEC can provide comments on an Issuer’s S-1 Registration Statement, FINRA may also have comments to the company’s Form 211 application.  When FINRA does have comments, the company’s securities lawyer and Market Maker must respond to them in a timely fashion.

Market Makers Obtain the Company’s Trading Symbol and Quote the Bid and Ask Price

After the question and answer process, if FINRA believes the company’s disclosures meet the requirements of Rule 15c2-11, FINRA assigns the company a “ticker” or trading symbol which will allow the sponsoring Market Maker to provide a bid and ask quote for the company’s stock.

Other Market Makers Can Piggyback to Quote the Company’s Stock After 30 Days

When the ticker symbol and initial quotations are in place, these will be found on  OTCMarkets.com.   After the company’s sponsoring Market Maker has published quotations for the company’s stock for 30 days, other market makers can “piggy back” in order to also publish quotations for the security without doing their own due diligence or submitting another Form 211.

Can Market Makers Charge Fees for 15c2-11?

Market Makers sponsoring companies by filing the Form 211 are technically not allowed to charge or accept a fee for work specific to 15c2-11.  As a practical matter, Issuers do pay fees for other services that are needed in connection with the Form 211, in the sense that Market Makers can refer the due diligence package to a securities lawyer of their choice, and Market Makers often also provide DTC eligibility consulting by working alongside a securities lawyer like Matt Stout in the process of helping companies become DTC eligible.

Matheau J. W. Stout works with Issuers seeking assistance in the 15c2-11 process and can help companies find Market Maker sponsorship for Form 211.  Companies with questions about the costs and timeline of going public by 15c2-11, or about the DTC eligibility process can reach Matt Stout at (410) 429-7076 or mstout@otclawyers.com.