Transactions in Over-the-Counter (OTC) Equity Securities

Trading in OTC equity securities carries a high degree of risk and may not be appropriate for all investors. In particular, in addition to other augmented trading risks, OTC equity securities may be "thinly traded" or more illiquid than exchange-listed securities, which tends to increase price volatility and impair your ability to buy or sell within a reasonable period of time without adversely impacting execution price(s). As a self-directed investor, you assume full responsibility for each and every transaction in or for your account and for your own investment strategies and decisions, including with respect to any transactions in OTC equity securities.

To the extent that you participate in any OTC equity security transaction, you acknowledge that you understand that OTC equity securities may be subject to different trading rules and trade on systems and venues different than exchange-listed securities. You may encounter significant delays in executions, reports of executions, and updating of quotations in OTC equity securities. Although market data relating to OTC equity securities may update, displayed pricing information and other OTC equity securities market data may not be current at any given point in time.

E*TRADE, at its sole discretion, may restrict your ability to enter market orders and other order types in certain instances and require you to place limit orders to trade OTC equity securities. Some order types when used for OTC equity securities may trigger, route, or execute in a manner different than exchange-listed securities. Additional information regarding order type availability and functionality for OTC equity security orders can be found at E*TRADE reserves the right to charge commissions or reject any order in any security including but not limited to OTC equity securities.

Under certain circumstances, OTC equity securities may not be registered with the Securities and Exchange Commission (SEC) and therefore may not be subject to the same reporting, disclosure, and regulatory oversight requirements that apply to SEC-registered securities. Investors are strongly advised to proceed with caution and thoroughly research companies before transacting in OTC equity securities. In some cases, issuers of OTC equity securities may have no obligation to provide information to investors and, in many cases, reliable information regarding issuers of OTC equity securities, their prospects, or the risks associated with the business of such issuers may not be available. As a result, it may be difficult to properly value investments in OTC equity securities. You should exercise additional care and perform thorough diligence before making any investment decision regarding an OTC equity security.

Issuers of OTC equity securities that fail to make current financial and other information publicly available, are insolvent, are under regulatory investigation or suspension, or are otherwise not in compliance with public company reporting requirements may become restricted to the “Expert Market.” In the event an OTC equity security that you own or may own in the future is classified as an “Expert Market” security, you may be prevented from selling that OTC equity security and the value of your OTC equity security may be significantly negatively affected or eliminated entirely. Specifically, opening transactions in “Expert Market” securities are not permitted and closing transactions in “Expert Market” securities will only be permitted under limited circumstances, subject to certain qualifications and restrictions.

Caveat Emptor Stocks

What does Caveat Emptor mean?

Caveat Emptor – “Buyer Beware” in Latin, has become a proverb of warning in the English language. In the investing world, it is the term used to identify securities classified as having much higher risks of stock ownership due to any number of reasons.

How does a stock become classified Caveat Emptor?

A stock may receive Caveat Emptor designation due to one or more reasons:

  • A misleading and manipulative stock promotion campaign could be actively trying to pump up the share price. This promotional scheme could take the form of false news reports, spam or newsletters “talking up” the prospects. Publication of such nefarious materials could be done by the issuer or a third party.
  • Potential fraudulent or other criminal investigations.
  • A trading halt or suspension due to concerns of public interest.
  • Unreported or insufficient reports of Corporate Actions such as name change, reverse splits.

If for any reason, the security is deemed to be a threat to the interests of the general public, the OTC Markets Group can and will declare a stock to be a Caveat Emptor security to protect the investing public.

Why does E*TRADE Securities restrict trading in them?

Because of the threat to the Public Interest in buying and trading securities with Caveat Emptor designation, E*TRADE will not allow any opening transactions in these stocks. E*TRADE also prohibits deposits and transfers in of Caveat Emptor securities.  If you hold a stock which becomes classified Caveat Emptor, you may continue to hold that security or you may sell to close the security assuming a market is available.

The Caveat Emptor designation will be removed by the OTC Markets Group once the company is no longer a threat to public interests and it meets the standards for Pink sheet listing.

For more information from OTC Markets on Caveat Emptor securities please reference this link:

To view the current list of Caveat Emptor securities please reference this link (check the Caveat Emptor box):