New York-based OTC Markets Group Inc. (OTCM) is the American financial market providing price and liquidity information for over-the-counter securities across OTCQX, OTCQB and Pink. Based on a mission to create better informed and more efficient financial markets, the company’s strategy is to share information through open and transparent networks, connect broker-dealers, organize markets, inform investors and deliver elegant, reliable and cost-effective subscription-based technology solutions.
The current CEO, Cromwell Coulson, acquired OTC Markets’ predecessor business more than two decades ago. Since then, he has transformed the company from a privately held publisher of broker-dealer quotations into a publicly traded company operating public markets for 10,000 securities that trade nearly $200 billion in dollar volume annually. Coulson and other individual insiders own more than 40% of the company’s shares as of the latest filing, which indicates an aligned management interest.
OTC Markets Group principally serves as a central network serving all parties involved in the U.S. over-the-counter market. It provides trading services (19% of fiscal 2018 sales) for broker-dealers, who pay subscription, usage-based and transaction-based fees, market data (39% of 2018 sales) for investors, traders, accountants and regulators who pay license fees and corporate services (42% of 2018 sales) for listed firms who pay application and service fees. What we especially appreciate the business model at OTC Markets Group is the almost 90% recurring portion of total sales, which sheds light on the company’s long-term cash flow and, hence, lowers risk for investors.
OTC Markets Group benefits from a multi-sided network effect, being the only major player in the niche over-the-counter segment. More listings may attract more traders and investors, generating more market data and liquidity, which, in turn, attracts more companies to get listed. This virtuous cycle continuously widens the moat for the business, strengthening the barrier of entry