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Over-the-Counter (OTC) Stocks vs. Dark Stocks: What’s the Difference?

A new SEC ruling has caused confusion among investors about OTC stocks. But it might create a great buying opportunity, and reduce confusion.

Last week, the Securities and Exchange Commission (SEC) drew a line in the sand between over-the-counter stocks vs. dark stocks. Technically they’re the same thing; “dark stocks” are simply over-the-counter (OTC) stocks that do not file their financial results with the SEC or But the new ruling, issued on September 28, means there is a major difference between the two.

Those differences could have major ramifications for your portfolio, if you’re someone who likes to dabble in the high-risk, high-reward world of OTC stocks.

Over-the-Counter Stocks vs. Dark Stocks after SEC Rule 2-11

In a nutshell, the new regulation – SEC Rule 2-11 – means that most mainstream brokers are forbidden from providing quotes and have stopped listing so-called “dark stocks,” which means literally thousands of small, mostly micro- and nano-cap stocks, are no longer easily available for trading. TD Ameritrade, Schwab, Fidelity, T. Rowe Price, E-Trade – none of them trade dark stocks anymore, after the SEC ruling.


The crackdown on dark stocks has had a carry-over into OTC stocks as a group; many in the sector – dark or not – fell 10%, 20%, 50% or more in advance of last week’s ruling. Due to their diminutive size and relative lack of history, most over-the-counter stocks have very little analyst coverage, if any. So it’s hard for the average investor to know which companies file their financial results with the SEC, and which don’t, without doing some digging. Thus, the new SEC ruling has scared investors away from OTC stocks as a group.

But that’s unlikely to last. And once investors are able to separate the “light” stocks from the “dark,” OTC stocks will be back in favor; the profit opportunities are too great for them not to be.

New Opportunity in OTC Stocks

The complexity of Rule-211 is part of what’s scaring people off, particularly since we’re barely more than a week since the rule took effect. Not many investors clearly understand it, and all they see is that some of their positions are now only for liquidation, and they can’t buy many of the stocks they looked at before.

Due to all this, the bids have fallen off, and some stocks got punished despite zero fundamental change in the underlying business.

This is where the opportunity lies. There are stocks that will continue to file their financials but have been hurt badly by the rule confusion. There are stocks that will cease to do so – and have therefore been deemed dark stocks – but trading in them might eventually be more accessible than some believe. In both groups, there could be investment opportunities.

But for now, it’s best to avoid dark stocks. And, in fact, the SEC ruling has made doing so easy; if an over-the-counter stock is no longer available at your online brokerage account of choice, it’s because it went “dark.” Thus, the remaining OTC stocks have SEC approval; in essence, the government agency has made it easier for you the individual investor to weed out the financially promising from the more shadowy, possibly pump-and-dump scheme frauds.

Now, you no longer have to separate over-the-counter stocks vs. dark stocks; the government is doing it for you, and so is your broker.

And if you want to know which OTC stocks you should be buying today, you’re in luck: we are about to launch a new advisory we’re calling our Cabot OTC Private Circle. Due to the extremely low trading volume in most of these stocks, we are limiting membership in our Private Circle to just 20 people. So, if you’re interested in this high-profit newsletter – where every two weeks, OTC market expert Jan Svenda will provide a list of over-the-counter stocks he likes – stocks you might never find on your own otherwise – and tell you why he thinks they have a chance to double, triple, or possibly much more in a short amount of time.

To learn more, click here.

Meanwhile, check back on the site tomorrow, for a follow-up piece by my colleague Brad Simmerman on the do’s and don’ts of trading illiquid securities – something you’ll need to know when buying and selling over-the-counter stocks.

Do you own any over-the-counter stocks in your portfolio? If so, were you aware of the new SEC rule - and has it changed the way you trade?


Chris Preston is Cabot Wealth Network’s Vice President of Content and Chief Analyst of Cabot Stock of the Week and Cabot Value Investor .