Over-the-counter trading volume has hit a record $548 billion, soaring past 2020 totals as retail investors pour into the market

• OTC Markets Group, which runs the main marketplaces for penny stocks and other unconventional securities, has seen $548 billion in trading volume so far this year.
• That figure already marks an all-time high and is just through the end of September.
• The SEC has been keen to push investor protection in a space notorious for fraud and pump-and-dump scams.

Over-the-counter stocks, a market segment long dominated by retail investors, are attracting unprecedented levels of interest as the Securities and Exchange Commission looks to clean up the fraud-prone segment.

So far this year, $548 billion in trading volume has been registered by OTC Markets Group, which runs the main marketplaces for penny stocks and other unconventional securities, according to company data first reported by the Wall Street Journal.

That figure - already at an all-time high - is just through the end of September, meaning it will continue rising through the end of 2021. For context, 2020 saw $445 billion in annual trading volume.

The surge has come in part on the back of a crypto boom. The same exchanges that list penny stocks also list unconventional securities like the Grayscale Bitcoin Trust, a popular way to gain exposure to bitcoin via equities that has been embraced by the likes of Cathie Wood.

After weighing by share price, GBTC has been the most popular OTC security this year, according to the Journal.

As trading roars, the SEC has been keen to push investor protection in a space notorious for fraud and pump-and-dump scams. In September, the agency introduced a new role that could result in the delisting of up to 2,000 penny stocks that don't disclose financial information.

"This was a huge step forward," Josh White, a Vanderbilt professor and former SEC researcher who works on penny stocks, told Insider. "If companies aren't providing at least basic disclosures … it's impossible for investors to get a good assessment of what [a company's] cash flows will be."

"That asymmetric information between investors and either insiders or fraudulent schemers is ripe for fraud," he added.

White credits OTC Markets Group for improving its tools for policing the penny stock market, where the SEC has delegated much of its oversight role to private gatekeepers.

But in September, OTC Markets Group warned about potential pitfalls in the new SEC rule, noting that while it broadly supported the rule, some companies might want to actively discourage trading in their stock.

"In those circumstances, no quotes at all may lead to more harm than help for existing investors," a lawyer for the company told Reuters.