OTC markets, or over-the-counter markets

An offer document, or prospectus, must be filed with the relevant stock exchange and be made publicly available, along with the S-1 for listing in the US, before a company can list shares for sale on a share market. Before investing in a company, investors can use this document to conduct their due diligence - looking at the company's assets, liabilities, financial performance, risk factors, and commercial potential for growth. The prospectus is updated before the listing date when the IPO price and number of shares are determined through the IPO process.

The prospectus includes information, such as how much money the CEO stands to make when the company makes their public debut, how much money a company intends to raise in their IPO, and what the company plans to do with the money (such as for growth or to pay off debt). It also includes information about a company’s competitors, and importantly, it’s the first time the world gets to take a look at the company’s total financial picture.

Oversubscribed is when investors have requested more shares in a company during an IPO than there are available, meaning demand exceeds supply. An oversubscribed IPO means investors are keen to buy the company's shares, often leading to a higher IPO share price or more shares offered for sale. This is opposite to an undersubscribed IPO.

Over-the-counter markets, or OTC, refers to the markets that list more than 12,000 securities, which can include stocks, ETFs (exchange traded funds), ADRs (American Depository Receipts), bonds, commodities, cryptocurrency, penny stocks, or derivatives. OTC markets are decentralised, as opposed to centralised exchanges like the NYSE and Nasdaq, but most still meet SEC regulations. Companies may choose to list on an OTC market if they don’t meet the requirements of other exchanges - such as trading volumes, shareholder numbers, or reporting requirements - or when they can’t meet the listing fees - which in June 2024 sat around US$250,000 to list on the NYSE, and up to US$173,500 on the Nasdaq. The OTC markets are electronic only, and trades occur directly between two parties, typically with no intermediaries (such as brokerages or brokers), but many still use stock tickers like traditional exchanges. OTC Markets Group (OTCM) operates a public market for some over-the-counter securities - some that go on to list on the NYSE and Nasdaq. Three main OTC exchanges include:

• Best Market (OTCQX): Credible companies that meet high financial and reporting standards
• Venture Market (OTCQB): Younger companies in growth mode that meet lenient financial guidelines‍
• Pink Sheets: Considered the riskiest of all, this OTC market is known for trading volatile penny stocks that were made famous by The Wolf of Wall Street. This market is prone to fraud, shell companies and a lack of financial or company transparency.

Options refers to financial contracts - called derivatives - that mean buyers have the right, but are not obligated, to buy or sell an underlying asset - such as stock, ETFs, commodities, indexes, interest rates, foreign currencies, or bonds - at a pre-agreed price and on a specified date. This is different from futures, where the buyer must buy the asset at the agreed price and date. There are two option types:

• Calls: Give the buyer the right to buy the asset at a specific price on or before a specific date without being obliged to complete the purchase
• Puts: Give the seller the right to sell the asset at a specific price on or before a specific date without being obliged to complete the sell.

The opening share price is the initial cost of one share in a company when it’s first listed on a share market. It’s often different from the offering price of an IPO, which is the price of shares before the company is listed on a share market.

The offering price, or issue price, is the final IPO share price that people who have received an allocation pay to receive shares as part of the company’s IPO. The final share price is usually not confirmed until the very last moment once the book-building process is complete. It might be different to the indicative price and is different again to the opening price. Learn more about how share prices are calculated.