Legal Definitions - National Quotation Bureau

The National Quotation Bureau is a private organization that historically served a critical function in the financial markets by compiling and distributing daily price information for securities that were not traded on major stock exchanges, such as the New York Stock Exchange (NYSE) or NASDAQ. These types of securities are known as "over-the-counter" (OTC) securities, and they typically belong to smaller companies, those that do not meet the listing requirements of larger exchanges, or those that have been delisted.

The Bureau's most famous publications were physical sheets of paper, often referred to as "pink sheets" due to their color. These sheets provided brokers and investors with essential bid and ask prices from various market makers, offering a degree of transparency in a less regulated and often less liquid segment of the market. While the method of information dissemination has largely transitioned to digital platforms today, the core purpose of providing accessible price data for OTC securities remains.

• Example 1: Researching a Smaller Company's Shares
  Imagine an individual investor interested in buying shares of a promising, privately held startup that is not yet large enough to be listed on a major stock exchange. To find out what price other investors are willing to pay or sell for these shares, the investor's broker would historically consult the daily publications from the National Quotation Bureau. This would provide the necessary bid and ask prices to facilitate a potential transaction.

  This illustrates how the National Quotation Bureau provided essential price transparency for "over-the-counter" securities, which are shares of companies not traded on major exchanges, allowing investors to gauge their value and trade them.

• Example 2: A Broker Executing a Trade for a Penny Stock
  A stockbroker receives an order from a client to purchase shares of a very small, speculative company, often referred to as a "penny stock." These types of securities are typically traded over-the-counter due to their low price, limited trading volume, and often smaller company size. Before executing the trade, the broker would refer to the National Quotation Bureau's listings (the "pink sheets") to see the most recent bid and ask prices offered by different market makers, ensuring the client gets a fair market price for these less liquid assets.

  This example demonstrates the Bureau's function in providing crucial daily price quotations for thinly traded, over-the-counter securities, enabling brokers to facilitate transactions in markets outside of traditional exchanges.

• Example 3: Valuing a Delisted Company's Stock for an Estate
  Consider a situation where a company's stock has been delisted from a major exchange due to financial difficulties, but its shares still exist and can be traded privately. An estate planner might need to determine the fair market value of these delisted shares for a client's estate. In such a scenario, the historical records published by the National Quotation Bureau would be a primary source for finding past trading prices and current market interest for these "unlisted" or "over-the-counter" securities, even if their trading is infrequent.

  This illustrates the National Quotation Bureau's role as a vital source of historical and current price data for securities that are no longer, or never were, listed on major exchanges, providing a reference point for valuation in less conventional market situations.