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Pink Sheets Penny Stocks Trading


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How The Pink Sheets Stock Quotation System Functions

The OTC Markets Group, Inc.  runs a stock quotation system at otcmarkets.com that facilitates trading in what has traditionally been known as pink sheets stocks.  The moniker “pink sheets” is from the days before electronic trading.  The predecessor to The OTC Markets Group, which was known as the National Quotation Bureau, used to publish a daily list of stocks that were traded outside of regular stock markets on pink sheets of paper.  Stock traders and investors looking for the latest price and sales information for pink sheets stocks would visit a brokerage firm or call their broker to find out the latest price and sales information for pink sheets stocks they were holding or considering buying.  With the advent of electronic trading, The OTC Markets Group no longer publishes stock information on pink sheets of paper.  However, the well-known pink sheets name lives on amongst penny stock traders and investors, both through tradition and the fact that the lowest tier of stocks that OTC Markets Group quotes is known as OTC Pink.

The OTC Markets Group’s stock quotation system is segregated into three marketplace tiers that clarify which types of stocks are quoted.  The stocks are segregated in this manner to make it easier for the stock trading and investing community to understand the types of stocks traded on otcmarkets.com.

  • OTCQX is the top tier.  Companies in this top tier must meet financial standards, be current in their disclosures to regulators, and be sponsored by a professional third-party advisor.
  • OTCQB is the middle tier.  The middle tier is designed for small or developing companies that are reporting to a United States regulator (Securities and Exchange Commission (SEC), bank, or insurance). This tier does not have minimum financial standards, and includes penny stocks and shell companies that are current in their disclosures to regulators.
  • OTC Pink is the bottom tier.  The bottom tier is what traders and investors traditional think of when they are considering pink sheets stocks.   OTC Pink can include any type of company, both those that are current in their disclosures to regulators and those that are not.  It can also include companies that are shell companies, development stage companies, and companies that are under financial strain.  To help traders and investors understand the risks associated with stocks that trade on OTC Pink, the tier is further segregated into the following categories:Pink Sheets Penny Stocks Categories
    • Current Information – Companies that follow the Alternative Reporting Standard or International Reporting Standard by making filings publicly available through the OTC Disclosure and News Service.
    • Limited Information – Companies with under economic distress, with financial reporting problems, or in bankruptcy that make the limited information they have available to the public.
    • No Information – Vompanies that are either not will or not able to provide disclosure to the public markets via a regulator, an exchange, or OTC Markets Group.
    • Caveat Emptor – This means Buyer Beware.  Companies in this category have a public interest concern associated with them, security, or control person which may include but is not limited to a spam campaign, questionable stock promotion, investigation of fraudulent or other criminal activity, regulatory suspensions, or disruptive corporate actions.
    • Grey Market – There are no broker-dealers quoting a security that trades in the grey market. It is not listed, traded or quoted on any United States based stock exchange or on any of the OTC Markets Group marketplaces. Trades in grey market stocks are reported by broker-dealers to their Self Regulatory Organization (SRO) and the SRO distributes the trade data to market data vendors and financial websites so investors can track price and volume.

The Pink Sheets Stock Quotation System Trades More Than Penny Stocks

The OTC Markets Group (otcmarkets.com) stock quotation system facilitates trading in approximately 10,000 Over The Counter (OTC) securities.  Despite the popular association of otcmarkets.com/pink sheets with penny stocks, the reality is that companies of all sizes choose to list their stocks on the otcmarkets.com stock quotation system to avoid having to reveal too much information via stock market required filings.  Some of the largest and most well known companies in the world that are based outside of the United States choose to have their stocks trade on otcmarkets.com to gain exposure to United States investors while avoiding stringent stock market reporting requirements.  These stocks trade for well above the $1 per share penny stock threshold.  The lack of SEC reporting requirements for stocks that trade on the lowest tier of otcmarkets.com, OTC Pink, attracts many companies that have stocks that trade in the penny stock range below $1 per share, and either do not have the resources to keep their SEC filings current or do not wish to disclose company information via SEC filings.

Trading Pink Sheets Penny Stocks

Pink Sheets Penny Stocks
Due to the lack of regulatory disclosure requirements, pink sheets penny stocks that trade on the OTC Pink tier are some of the most treacherous stocks to trade.  It is very important for investors and traders considering buying pink sheets penny stocks to do proper due diligence on the companies behind the stocks prior to buying.  The information provided about pink sheets penny stocks on mainstream financial information and news sources, such as Yahoo Finance and Google Finance, is usually quite limited.  The OTC Markets Group’s website (www.otcmarkets.com) is an excellent place to start a due diligence assessment of pink sheets penny stocks.  The information provided on otcmarkets.com includes:  charts/price history, company structure and contact information, share structure information, recent news, and company financials and filings.

At the very least, penny stock traders and investors need to determine the OTC Pink category that OTC Pink penny stocks are in before committing money to a penny stock trade or investment.  The gains in OTC Pink penny stocks can be tremendous, which is why so many investors and traders are willing to risk their capital on these stocks; however, the risks are also quite high due to the precarious condition many of the companies behind these penny stocks are in, so a cautious approach is the best approach.

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