January was the 11th consecutive month of declines in trading in unlisted U.S. shares, at 70% below the record high set in February 2021, reports an article in Financial Times. It’s a sign of cooling in speculative bets after the frenzy at the height of the pandemic, the article contends, as both volatility and interest rates increase.
Unlisted U.S. shares, also known as “over-the-counter” equities or penny shares, are stocks that aren’t quoted on a national securities exchange, and include smaller companies and more controversial sectors such as cryptocurrency or cannabis, as well as American depositary receipts that allow investors to buy stocks in foreign companies, the article explains.
There’s been “a definite leveling off in activity,” says Jason Paltrowitz, VP at OTC Markets Group, but even with that decline, activity is still stronger than prior to the pandemic and will eventually settle at a “new normal” level for the long-term. Also, investors are now trading in industries they care about and believe in, rather than following trends like meme stocks and internet hype. And with the smaller pool of investors who are making higher-value trades, the value of activity has been stronger.
Additionally, stiffer regulations has contributed to the decline, the article continues, as the SEC clamps down on trading in riskier sectors in the market. Retail investors are now prevented from trading stocks of companies that haven’t provided up-to-date corporate disclosures—more than 1000 companies that were especially vulnerable to fraud fell into that category. Institutional investors have also pulled back on borrowing money for investments: the amount of margin loans owed by investors fell 9% month over month in its biggest drop since March 2020.