Single Market Maker
The buying and selling quotes available on OTC are provided by a single market maker who proposes to acquire or dispose of securities for its own account at its own subjective quoted prices. The market maker is not bound to provide a quote except with respect to unlisted securities originally purchased from the market maker and then only if the market maker believes it to be in its commercial interest to do so. There is therefore no guarantee that the market maker will make any quote at all.

Trading Commissions
Before you begin to trade, you should obtain a clear explanation of all commissions, fees and other charges for which you will be liable. These charges will affect your net profit (if any) or increase your loss.

Spreads
The difference between the bid and the offer price is the ‘spread’. To compensate for the risk taken by the market maker in dealing with the shares and maintaining liquidity, the market maker has the incentive to buy shares at a lower price and sell at a higher price. A spread that is large compared with the purchase price can make the resale of a security very costly for investors. It is a cost that is additional to the normal commissions paid for executing trades. If frequent trading takes place, the spread can rapidly erode investment capital.

Illiquidity Risks
The available number of securities for purchase or sale at any one time is dependent on the market making activity. The market may at times face a disproportionate amount of either buying or selling which can affect the market maker’s capacity to handle all the pending purchases and sales. As such, liquidity may be limited to a certain number of securities on a given day or / and large pricing moves may occur due to a higher than expected level of market action.

Lower Level of Disclosure
Offers under OTC are made in reliance on the exemption under section 272A (8) (c) of the Securities and Futures Act. They are not made in or accompanied by a prospectus that is registered by Monetary Authority of Singapore. The companies whose securities are quoted on OTC are generally subject to less stringent requirements or different standards of entry requirements and corporate governance relative to those in stock exchanges like SGX. For example, there is no mandatory requirement for applicant companies to demonstrate a profitable track record when seeking admission to OTC; no requirement for independent directors or audit committees; and no specific set of corporate governance codes to abide by. The companies quoted on OTC may be young; have a scalable business model; exhibit potential to grow and the management usually have vested interest in the company as shareholders.
You have to be satisfied that you will be making investment decisions based on limited or no information and that you should do your own independent check on each company if you require more information before making any investment. The general rule in such offers is one of caveat emptor or buyer beware.

Different Standards
The securities of companies quoted on OTC are not listed in any recognised stock exchange and the applicable corporate reporting obligations or requirements are the Companies Act, OTC Capital Rules, Securities and Futures Act or any other relevant guidelines or regulation. There is no independent third party oversight by any exchange and the securities that are issued and sold through the OTC have not been approved by the Monetary Authority of Singapore for sale to the general public who are not pre-qualified.

Higher Business Risks
There may be higher level of business risks because the company may be small and young with a relatively short business track record. The companies do not need to demonstrate a profitable track record in the past for admission to OTC Capital. The prospects of any company whose unlisted securities are offered for sale and resale via OTC eventually being listed on a securities exchange are not certain.