Risks

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.

Liquidity Risks

The buying and selling quotes on OTC Capital are provided by PSPL in its role as the sole market maker. PSPL may propose to acquire or dispose of quoted securities for its own account at its own subjective quoted prices. PSPL, as the market maker, is not bound to provide a quote. There is therefore no guarantee that the market maker will make any quote at all.

The opportunity to trade in the unlisted securities is dependant on the number of securities available for purchase or sale at any one time. You may therefore not succeed in buying or selling your securities due to illiquidity on OTC Capital.

Limited Regulatory Oversight

OTC Capital enables small and medium size Singapore companies to raise funds not exceeding SGD5 million within any 12-month-period, by way of offer of unlisted securities in reliance on the small offer exemptions under Section 272A(1) & (8) (c) of the Securities and Futures Act where such offer is not made in or accompanied by a prospectus that is registered by the Monetary Authority of Singapore.

As such, the companies quoted on OTC Capital are not subject to the same standards of disclosure and corporate governance expected of companies listed on stock exchange.

Investors of OTC Capital companies should be aware that investment decisions may be based on limited information and they should carry out independent checks if they should require more information. As the general principle is “caveat emptor” or “buyers beware”, unlisted securities of companies quoted on OTC Capital are therefore not suitable for investors with conservative investment objectives and risk profile.

Different Reporting Standards

The securities of companies quoted on OTC are not listed in any recognized 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.