Under the Microscope: Zeroing in on OTC Stock: IBERDROLA SA BILBAO (IBDSF)

IBERDROLA SA BILBAO (IBDSF)’s shares have attracted interest from OTC investors as their share price moved -0.04, reaching a price of $6.58 after recent trading. 

Noting the stock’s historical numbers, IBERDROLA SA BILBAO (IBDSF)’s stock was $0.05 over the last year with the 52-Week high of $7.21 and 52-Week low of $6.26. 

It’s important to use market capitalization (market cap) to show the size of a company because company size is a basic characteristic in which investors are interested.  Luckily, it’s easy to calculate: Market Capitalization = Number of Shares Outstanding x Price.  For example, if a company has 10 million shares selling at $100/share, it would have a market cap of $1 billion. IBERDROLA SA BILBAO (IBDSF)’s market cap currently sits at $42120000000.

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IBERDROLA SA BILBAO’s stock has performed at $-8.72 month over month. Short interest stands at 405200 with 33.5 days to cover, compared to 443900 short interest last month. 

Over-the-counter (OTC) or “off-exchange” trading is done directly between two parties, without an exchange acting as a middle man.  Stock exchanges have the benefit of creating liquidity, mitigating credit risk, providing transparency, and keeps the current market price.  An OTC trade, however, does not necessarily publish for the public.

OTC trading occurs with commodities, financial instruments, stocks, and derivatives.  Products traded on the exchange must be standardized.  Exchanged deliverables match a specific range of identity, quantity, and quality which is defined by an exchange and is identical to all other transactions of said product.  This is a necessity in order for there to be transparency in the trading.  OTC markets do not have this limitation.  In OTC markets, contracts are bilateral (between only two parties), and each party could have credit risk concerns.  The OTC derivative market is significant in the asset classes of interest rate, stocks, commodities, and foreign exchange. 

In the U.S., over-the-counter trading is facilitated by market makers using inter-dealer quotation services like the OTC Link and the OTC Bulletin Board.  The OTCBB licenses the services of OTC Link for their securities.  Though rarely the case, exchange-listed stocks can be traded OTC on the third market.  Most likely, however, OTC stocks are not listed nor traded on exchanges.  Stocks quoted on the OTCBB must comply with certain limited SEC requirements.  The SEC imposes more thorough reporting and financial requirements on other OTC stocks, specifically the OTCQX stocks.  Other OTC stocks have no reporting requirements, such as “gray market” socks and Pink Sheet securities. 

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Some companies began trading as OTC stocks and then eventually upgraded to a listing on a fully regulated trading market, with Wal-Mart being one of the most famous examples.  In 1972, with stores in five states and becoming the fastest company ever to earn over $1 billion, Wal-Mart (WMT) was finally listed on the New York Stock Exchange (NYSE) after trading OTC since 1968.  

OTC derivatives can lead to significant risks, especially counterparty risk, which is the risk that a counterparty in a transaction will default prior to expiration of the trade and will fail to make the payments as required by the contract.  However, there are many ways to limit this risk, such as controlling credit exposure with portfolio diversification, hedging, netting and collateralization. 

OTC trading is a major part of the world of global finance.  OTC derivatives markets are large, growing massively from 1980 through the year 2000.  This expansion was driven by credit default swaps, foreign exchange instruments and interest rate products.  The OTC derivatives markets rose throughout this period, totaling approximately $601 trillion by the end of 2010.

Disclaimer: The views, opinions, and information expressed in this article are those of the authors and do not necessarily reflect the official policy or position of any company stakeholders, financial professionals, or analysts. Examples of analysis performed within this article are only examples. They should not be utilized to make stock portfolio or financial decisions as they are based only on limited and open source information.



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