Pink Sheets – About Over the Counter Securities
Not all stocks are sold through the main exchange systems, such as NYSE and NASDAQ. There are numerous smaller companies that do not qualify for these exchanges for whatever reason, and which can instead be bought and sold through an electronic system known as the Pink Sheets. These stocks are commonly called OTC or over the counter stocks. The companies that are quoted in this type of system tend to be small or closely held, and can be risky investments if you are not careful. Be sure to always conduct adequate research with the help of your broker, and pay attention to the classification of each company.
Many Pink Sheets stocks are sold through the premium market tier offered, OTCQX. This is an exchange that requires all listings to meet certain criteria. For example, they must have a minimum bid price of $0.25, eliminating so-called “penny stocks” from the exchange. They must be included in S&P or Mergent Manual, have 50 round lot shareholders, and have their annual financials audited by a registered audit form, to begin with. Those that do not meet these basic requirements for the OTCQX can then be listed on the Pink Sheets market in several other categories.
These other Pink Sheets exchange categories can include current SEC filers, who are registered but may not have current information that meets the requirements above. Another category includes banks, insurance companies, and foreign businesses that have current information but are not registered as part of the SEC system. Finally, there are some businesses that may have extremely limited information, no information provided at all, or stocks that are the subject of spam and other red flags for consumers. It’s important to pay attention to these categories if you are navigating through the stocks available on your own, to make the best decision.
The benefit to purchasing OTC stocks through the Pink Sheets exchange is that you can find some significant bargains, such as those smaller companies that are not yet big enough to list on the main market exchanges. There may be businesses out there, however, with bad credit or little to no information, and you should always proceed with the assistance of a professional broker if you are trying to find the best deal on these types of stocks. A good place to start is with the ranking system and some basic internet research into the company’s background.