The Korean stock markets include the KOSPI market (main board), the KOSDAQ market (new market), and the FreeBoard (organized OTC stock market). Originally, the first organized OTC stock market in Korea was the Third Market, which was founded in March 2000, specifically for the purpose of providing liquidity for stocks which could not meet the listing requirements for the regulated markets (the KOSPI and the KOSDAQ markets), particularly venture-related growth stocks; or which had been delisted from the regulated markets. Except for the first couple of years, however, the Third Market suffered from illiquidity arising mainly from regulatory inadequacy and the IT bubble. Hence, the Third Market did not fulfill the goals for which it was created. The Korean government decided to revamp the Third Market under its “Plan to Support Finance and Tax for Developing the Venture Industry;” in July 2005, the Third Market was replaced by FreeBoard, market rules were strengthened, and some tax benefits were added. However, the tax benefits fell short of the tax benefits provided to the regulated markets, and FreeBoard retained an archaic trading mechanism, in which orders are usually matched only if they are identical in both price and quantity. In this paper, we examine how effectively FreeBoard (including the Third Market, the predecessor of FreeBoard) has served three particular roles as the organized OTC stock market in Korea. The roles examined are: providing liquidity and market quality, providing financing, and bridging the OTC and regulated markets. First of all, FreeBoard's creation of liquidity and market quality are examined through microstructure analysis. The latest microstructure theory uses trade-execution costs (or pricing errors) to measure a stock market's quality in general. Hasbrouck (1993) and Bandi and Russell (2006) are representative of the research. In this paper, we utilized the Full-Information Transaction Cost (FITC) in Bandi and Russell as the main analytical frame. In addition, as a robustness check, we used Hasbrouck's measure for pricing errors. We analyzed these estimates and other market statistics to measure the market quality of the FreeBoard in comparison to the KOSDAQ market. Next, we evaluated FreeBoard's role of providing finance to unlisted firms by analyzing the total amounts of equity and bond financing raised by companies. Finally, we undertook a market macrostructure analysis to examine FreeBoard's role of bridging the OTC and regulated markets. The analysis of the connection between the OTC and regulated markets compares the changes in market liquidity and volatility resulting from a listing transfer from the regulated markets to the FreeBoard or vice versa. Until recently, there has been very limited academic research concentrating on the OTC stock markets. However, the development of IT relating to stock trading and the increasing liquidity of the OTC markets has recently enabled the collection of OTC trading data, and several research projects are being carried out internationally, especially in the U.S. Compared to other papers focusing on Korea, this is the first paper to use FreeBoard's intraday data to test its functional efficiency and economic significance. Other international papers have conducted analysis for the “one-way” bridging function from the NYSE and Nasdaq down to the OTCBB and Pink Sheets (Easley, O'Hara and Pompilio (2005) and Harris, Panchapagesan and Werner (2008)). This is the first paper to conduct a complete analysis of the OTC market's “two-way” bridging function, both from the regulated markets down to the OTC, and from the OTC up to the regulated markets, in order to investigate the significance of the OTC market's macrostructure. The sample period is from March 2000 to December 2007. We used intraday trade execution data for all stocks listed (registered) on both the Third Market and FreeBoard. We found the following results. •Market statistics of the firms listed on the FreeBoard are qualitatively very low and its market quality measured by FITC (or Hasbrouck's pricing errors) is much lower than those of the KOSDAQ market. Hence, the FreeBoard does not provide adequate liquidity or market quality, and thus does not provide an attractive new investment opportunity for investors. • Few public offerings have been made since the inauguration of the market, so FreeBoard has not significantly facilitated financing for unlisted and unregulated firms. • In the case of stocks moving from regulated markets down to the FreeBoard, liquidity dried up and volatility increased substantially. In contrast, for stock transferring from the Free- Board up to the KOSDAQ market, both liquidity and volatility improved tremendously. In the latter case, perhaps surprisingly, the stock prices decline slightly; our interpretation is that the prices were too high on Freeboard since the greater liquidity suggests that pricing on KOSDAQ should be more efficient than it is on FreeBoard. Taken together, these results imply that FreeBoard's market efficiency is very low. Our results also show that the functional gap between FreeBoard and the KOSDAQ market is huge, thereby exacerbating the inefficiency in the macrostructure of the Korean stock markets. Moreover, our results indicate that FreeBoard's archaic trading mechanism has been the essential cause of inefficiency on FreeBoard and should be improved immediately.