Anyone know the exact reason why OTCBB and Pink Sheets can't be traded by HF's/Prop firms?
I know a good deal about trading/exchanges and how OTCBB/Pink Sheets are widely manipulated as well as lacking in information when it comes to financial statements etc. But is this the only reason why these exchanges cannot be traded by HF's/Prop firms or is there another reason like the routing techniques used. Specifically that a lot of these stocks aren't transmitted electronically.
I have been very curious about this question and would appreciate any insight you guys may have.
You are misinformed; many hedge funds and prop shops can and do trade OTC. Liquidity and reporting are reasons for there being less volume, however. Are you referring to the fact that OCTBB and PINK are bulletin boards rather than listings venues and therefore there's less of an opportunity for HFT? There are market makers on the pink sheets but there's no place to co-locate and try to get a latency advantage over another trading venue because OTC products are by definition not listed. Does that help?
Funds scale out of OTC stocks. They're so illiquid, no one managing more than a small quantity of money can really invest meaningful amounts in them. But yes, they are are often manipulated and inefficiently priced.
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