ETFdb Logo
ETFdb Logo
  • ETF Database
  • Channels
    • Active ETF
    • Alternatives
    • Beyond Basic Beta
    • China Insights
    • Climate Insights
    • Commodities
    • Core Strategies
    • Crypto
    • Disruptive Technology
    • Dividend
    • Dual Impact
    • Emerging Markets
    • Energy Infrastructure
    • ESG
    • ETF Building Blocks
    • ETF Education
    • ETF Strategist
    • Fixed Income
    • Free Cash Flow
    • Future ETFs
    • Global Diversification
    • Gold & Silver Investing
    • Innovative ETFs
    • Institutional Income Strategies
    • Leveraged & Inverse
    • Managed Futures
    • Market Insights
    • Megatrends
    • Modern Alpha
    • Multi-Asset
    • Night Effect
    • Portfolio Strategies
    • Retirement Income
    • Richard Bernstein Advisors
    • Tax Efficient Income
    • Thematic Investing
    • Volatility Resource
  • Tools
    • ETF Screener
    • ETF Country Exposure Tool
    • ETF Sector Tracker Tool
    • ETF Database Categories
    • Head-To-Head ETF Comparison Tool
    • ETF Stock Exposure Tool
    • ETF Issuer Fund Flows
    • Indexes
    • Mutual Fund To ETF Converter
    • ETF Data for Journalists
    • ETF Nerds
  • Research
    • First Bitcoin ETF
    • ETF Education
    • Equity Investing
    • Dividend ETFs
    • Leveraged ETFs
    • Inverse ETFs
    • Index Education
    • Index Insights
    • Top ETF Sectors
    • Top ETF Issuers
    • Top ETF Industries
  • Webcasts
  • Themes
    • AI ETFs
    • Blockchain ETFs
    • See all Thematic Investing ETF themes
    • ESG Investing
    • Marijuana ETFs
  • Multimedia
    • ETF 360 Video Series
    • ETF Trends on Videos
    • ETF Trends on Podcasts
    • ETF Prime Podcast
  • Company
    • About Us
    • Swag Store
  • PRO
    • Pro Content
    • Pro Tools
    • Advanced
    • FAQ
    • Pricing
    • Free Sign Up
    • Login
  1. Core Strategies Channel
  2. The SEC’s Unintentional OTC Market Lock
Core Strategies Channel
Share

The SEC's Unintentional OTC Market Lock

Karrie GordonOct 11, 2021
2021-10-11

The importance of liquidity was just made very apparent to millions of individual investors in over-the-counter (OTC) markets at the end of September. A recent rule by the SEC that was aimed at protecting retail investors and went into effect at the end of last month has inadvertently frozen individual investors out of the markets while professional investors continue trading, reports the Wall Street Journal.

The vital role that liquidity plays is something that investors have learned the hard way historically; the most recent example before this latest ruling was when Robinhood temporarily froze trading in hot stocks like GameStop and AMC in January. In the past, the financial crisis of 2008 saw even what are considered extremely safe and reliable money-market funds cease money dispensation to shareholders temporarily, and the “flash crash” in May 2010 saw liquidity disappear instantaneously.

There are almost 12,000 stocks and bonds that are listed in OTC markets that aren’t carried on the NYSE or Nasdaq, and it is primarily individual investors who are interacting within these markets. OTC markets are places where legitimate and illegitimate companies both can be found, creating potential risk for investors.

The SEC ruling was an attempt to regulate this space and ensure that there was a level of transparency that didn’t previously exist for investors. The ruling means that brokers cannot provide public price quotes, and therefore often cannot trade the stocks and bonds publicly of any companies that haven’t released current financial information. While this shouldn’t be an issue for legitimate companies, the norm within the markets up until now has been one where companies simply don’t release their financial information at all.

What ensued was pandemonium as individual investors suddenly found themselves frozen out of buying most stocks; they could sell what they already owned, but as prices dropped in the midst of the chaos, they could not partake in any buying. What’s more, professional investors are being permitted by brokers to continue trading, and so they are scooping up market shares in spaces where retail investors are essentially flash-frozen into most of their investments as of the end of last month.

“If [small investors] were not paying attention to that rule change, they’d better be happy with what they own, because they may be stuck with it for a very long time,” says Robert Forster, a former hedge-fund portfolio manager who occasionally trades OTC. “You owned a publicly traded security; now you’re a private-equity holder. Congratulations! You own it forever.”

Actively Managed Protections Against Volatility

American Century Low Volality ETF

Content continues below advertisement

American Century Investments understands the importance of liquidity within markets. With their offering of the American Century Low Volatility ETF (LVOL C+), investors are able to invest in the market long-term with less volatility, especially in downturns when liquidity abruptly changes.

LVOL is an actively managed fund that uses the S&P 500 as its benchmark. The fund seeks to offer lower volatility than the overall market by screening for asymmetric, or downside, volatility as well as investing in companies with strong, steady growth.

It not only looks to reduce volatility at the portfolio level, but also in its individual securities. The portfolio managers seek to balance returns with risk management by evaluating the individual securities and their place and performance within their sector and overall.

Securities are sold when they become less viable compared to other opportunities, when the risk becomes greater than the return potential, or when other events that might change its prospects occur. By balancing risks and responding to changing market conditions as they happen, American Century works to capitalize on market liquidity.

LVOL has an expense ratio of 0.29%.

For more news, information, and strategy, visit the Core Strategies Channel.

Loading Articles...
Help & Info
  • Contact Us
Tools
  • ETF Screener
  • ETF Analyzer
  • Mutual Fund to ETF Converter
  • Head-To-Head ETF Comparison
  • ETF Country Exposure Tool
  • ETF Stock Exposure Tool
  • ETF Performance Visualizer
  • ETF Database Model Portfolios
  • ETF Database Realtime Ratings
  • ETF Database Pro
More Tools
  • ETF Launch Center
  • Financial Advisor & RIA Center
  • ETF Database RSS Feed
Explore ETFs
  • ETF News
  • ETF Picks of the Month
  • ETF Category Reports
  • Premium Articles
  • Alphabetical Listing of ETFs
  • Best ETFs
  • Browse ETFs by ETF Database Category
  • Browse ETFs by Index
  • Browse ETFs by Issuer
  • Compare ETFs
Legal
  • Terms of Use and Privacy Policy
  • © 2023 VettaFi LLC. All rights reserved.
Follow ETF Database
Follow ETF Database

Advertisement

Is Your Portfolio Positioned With Enough Global Exposure?

ETF Education Channel

How to Allocate Commodities in Portfolios

Tom LydonApr 26, 2022
2022-04-26

A long-running debate in asset allocation circles is how much of a portfolio an investor should...

Core Strategies Channel

Why ETFs Experience Limit Up/Down Protections

Karrie GordonMay 13, 2022
2022-05-13

In a digital age where information moves in milliseconds and millions of participants can transact...

}
X