Translation: Over-The-Counter (OTC) = over-the-counter trading.

Simple definition: It is a decentralized financial market where shares (or securities) are bought and sold directly between the seller and the buyer, outside the official trading platform of the financial market (such as the Main Market or Nomu). Companies are usually transferred to this market as a disciplinary measure if they violate strict listing rules (such as a share price falling below the minimum threshold or a delay in announcing financial statements), or in the case of companies that do not meet listing requirements in the first place. In other words, it is a "shadow market" or secondary market where the high level of transparency and rapid liquidity provided by official platforms is absent.

How does it work? It does not use an equation or an instant electronic matching system like the main trading screen. Instead, trading takes place through direct negotiation: the financial broker searches their network for a buyer willing to purchase the quantity you are offering, or vice versa, and the price is agreed upon outside the automated order book.

Example (Malan Company): Based on the previous news, if Malan fails to raise its share price above the minimum threshold (SAR 3) through a share consolidation within the specified deadline, the market administration will suspend trading in the shares on the official trading screen and transfer them to over-the-counter trading. This means your shares will not disappear, but if you want to sell them, you will not be able to do so with a quick press of a button through your bank’s app. You will have to submit a request through your financial broker to find a buyer in this decentralized market, and you will often have to sell at a much lower price than the last closing price because of the shortage of buyers.

What does this mean for you?

  • Liquidity crisis (difficulty converting to cash): The biggest risk of over-the-counter trading is the absence of day traders and market makers. You may offer your shares for sale and wait for days or weeks without finding a buyer, turning your investment into an illiquid asset that is difficult to convert into "cash" when needed.
  • Limited transparency and absence of a fair price: In the official market, you can transparently see the volume of bids and offers and sell at a fair market price. Over the counter, however, the spread between the bid and ask prices can be very wide, and the buyer often dictates the price because they know your options are limited.
  • High-risk indicator: A company’s transition to over-the-counter trading is a warning sign reflecting its failure to meet the market’s regulatory or financial requirements. This means that holding the shares carries substantial risks related to the company’s future and its ability to continue operating.

Frequently asked question: If my company’s shares are transferred to over-the-counter trading, does that mean the company has gone bankrupt and all my money has been lost?

Answer: No. Transfer to over-the-counter trading does not mean bankruptcy or liquidation, nor does it mean that your ownership has been canceled. You still own the same proportion of shares, and the company may continue conducting its business and operations normally. The only difference is that the "place" where you buy and sell these shares is no longer the regulated and open financial market, but rather a secondary market suffering from limited liquidity. It is worth noting that if the company later succeeds in correcting its financial and legal situation, it may apply to return to listing on the official market.