Buying Preferred Stocks on the OTC Grey Market

Eagle Eye Opener

Have you ever had a question about buying preferred stocks at “wholesale” prices before they are listed on the NYSE or NASDAQ? Here’s a primer about the process.

When preferred shares are registered, the terms and conditions of the offering are negotiated with the underwriters. One of those negotiations to bring to your attention is how much the underwriter will be compensated for distributing the shares.

For instance, Public Storage (PSA) offered preferred and negotiated an underwriting discount of 78.75 cents/share. Essentially, this means the underwriter “pays” $24.2125/share with the intention of re-selling the shares for $25/share. In a perfect world, the shares would sell for $25 — but this isn’t how it really works.

After the registration is accepted by the Securities and Exchange Commission (SEC) and becomes effective, there is a delay prior to the listing of shares on the NYSE (or NASDAQ). You will see in almost every prospectus or registration statement a clause that says “we intend to apply to have these shares listed on the NYSE under the symbol xxxxx. If this application is approved, trading of the shares is expected to begin within 30 days” (or something similar). It almost always takes at least three days (to as much as 10 days) to be approved for listing. Since time is money the underwriters are anxious to begin selling and they will apply to sell shares immediately on the OTC market–to the retail investor this is the ‘wholesale market’.

From this point on the shares are sold and it is pretty much a supply and demand situation — did the underwriters price the shares correctly? How anxious is the retail investor to buy the issue? The underwriters can gauge the appetite of the market for the shares at this point in time and sell the shares at whatever level they believe is correct.

Exclusive  Five Cutting-edge Software Investments to Buy as Technology Rises

What is the correct price to pay when buying in the OTC grey market? There is no answer to this question. The way to handle this is to not jump in immediately. Instead,  let hundreds of thousands of shares trade and note the pricing.

If I want an issue, I would likely buy on the second day and probably put an order in near the last price paid (although if there is a wide spread — say 20 cents, I would put in an order mid-range and wait — adjust up or down as necessary). Typically, if I want an issue on the OTC market, we have a belief that the shares will move a fair amount higher once they begin trading on the NYSE or NASDAQ. Thus, I am not going to quibble over a nickel — trying to save a nickel is a waste of time — a nickel is like 1 week or 10 days of dividends.

Remember, the OTC grey market is not a super-automated system like the big exchanges. As a result, information on pricing and volumes is limited — the use of common sense is paramount.

NEVER put in a “market” order for these shares. In fact, the systems I am familiar with do not allow a market order on the OTC market. You MUST use “limit” orders.

There is NO GUARANTEE that shares will move higher when trading moves to the NYSE or NASDAQ — many times they do, but not always.

share on:

Like This Article?
Now Get Mark's FREE Special Report:
3 Dividend Plays with Sky-High Returns

This newly-released report by a top-20 living economist details three investments that are your best bets for income and appreciation for the rest of the year and beyond.

Get Access to the Report, 100% FREE

share on:


Dr. Mark Skousen

Named one of the "Top 20 Living Economists," Dr. Skousen is a professional economist, investment expert, university professor, and author of more than 25 books.

Product Details

  • Forecasts & Strategies
  • Home Run Trader
  • Fast Money Alert
  • Five Star Trader
  • TNT Trader

Bryan Perry

A former Wall Street financial advisor with three decades' experience, Bryan Perry focuses his efforts on high-yield income investing and quick-hitting options plays.

Product Details

  • Cash Machine
  • Premium Income PRO (exclusively for subscribers of Cash Machine)
  • Quick Income Trader
  • Breakout Options Alert
  • Hi-Tech Trader

Jim Woods

Jim Woods has over 20 years of experience in the markets from working as a stockbroker,
financial journalist, and money manager. As well as a book author and regular contributor to
numerous investment websites, Jim is the editor of:

Product Details

  • Successful Investing
  • High Velocity Options
  • Intelligence Report
  • Bullseye Stock Trader
  • Eagle Eye Opener

Bob Carlson

Bob Carlson provides independent, objective research covering all the financial issues of retirement and retirement planning. In addition, Bob serves as Chairman of the Board of Trustees of the Fairfax County (VA) Employees’ Retirement System, which has over $2.8 billion in assets.

Product Details

  • Retirement Watch
  • Retirement Watch Spotlight Series
  • Lifetime Retirement Protection Program

Jon Johnson

Jon Johnson's philosophy in investing and trading is to take what the market gives you regardless if that is to the upside or downside. For the past 21 years, Jon has helped thousands of clients gain success in the financial markets through his newsletters and education services:

Product Details

  • Investment House Daily
  • Stock of the Week
  • Technical Traders Alert
  • Rapid Profits Stock Trader

Used by financial advisors and individual investors all over the world, is the premier provider and one-stop shop for dividend information and research.

Product Details

Popular tools include our proprietary Dividend Calendar, Dividend Calculator, Dividend Score Card, and many more.

  • Dividend Investor

George Gilder

George Gilder is the most knowledgeable man in America when it comes to the future of technology and its impact on our lives.  He’s an established investor, bestselling author, and economist with an uncanny ability to foresee how new breakthroughs will play out, years in advance.

Product Details

  • Technology Report
  • Technology Report PRO
  • Moonshots
  • Private Reserve
  • Millionaire Circle


DayTradeSPY was founded by head trader Hugh Grossman, a retired internal auditor for a Fortune 500 company. After years of first-hand experience trying out one trading strategy after another, Hugh instead developed his own trading system centered around day trading SPY options. That’s it... Nothing else.

Product Details

  • Trading Room
  • Pick of the Day
  • Inner Circle
  • Online Workshops