PinkSheets - OTC Market Requiring Investors to Be Extremely Cautious
Pinksheets is electronic quotation system referring to OTC trading, where unlike on a stock exchange companies do not need to meet minimum requirements or file with the SEC.
Pinksheets is an electronic quotation system operated by Pink OTC Markets that displays quotes from broker-dealers for many over-the-counter (OTC) securities. These securities tend to be inactively traded stocks, including penny stocks and those with a narrow geographic interest.
Market makers and other brokers, who buy and sell OTC securities, can use the PinkSheets to publish their bid and ask quotation prices. The name "Pink Sheets" comes from the color of paper they were historically printed on. They are published electronically today by Pink OTC Markets Inc., a privately owned company. Pink OTC Markets Inc. is not registered with the SEC in any way and it is not the Financial Industry Regulatory Authority (FINRA) Broker-Dealer.
To be quoted in the PinkSheets, companies do not need to fulfill any requirements (e.g. filing financial statements with the SEC). The companies quoted in the Pink Sheets tend to be closely held, extremely small, thinly traded, or bankrupt. Most do not meet the minimum U.S. listing requirements for trading on a stock exchange such as the New York Stock Exchange. Many of these companies do not file periodic reports or audited financial statements with the SEC, making it very difficult for investors to find reliable, unbiased information about those companies.
For these reasons the SEC views companies listed on PinkSheets as "among the most risky investments" and advises potential investors to heavily research the companies in which they plan to invest.
OTC Market Tiers
The OTC market is made up of many different types of companies, ranging from OTCQX companies that strive to be worthy of investor consideration to economically distressed companies to speculative shell companies.
OTCQX - Trusted
OTCQX is a premium market tier offered by OTC Markets. It aims to increase the transparency of OTC companies that have operating businesses and provide financial disclosure, but are not traded on an official stock exchange. Similar to companies quoted on the Pink Sheets, OTCQX companies are not required to be fully SEC reporting companies. Despite this, OTCQX companies must provide audited financials and certain disclosures to OTC Markets.
OTCQB And OTCBB - U.S. Registered
The OTCQB market tier helps investors easily identify companies that are Registered and current in their reporting obligations with the SEC or report to a U.S. banking or insurance regulator. OTCQB securities are quoted on Pink OTC's quotation and trading system and some may also be quoted on OTCBB.
Pink Sheets Current Information - Transparent
Indicates reporting companies that submit filings to regulators with powers of review and that make the filings publicly available or non-reporting companies that make current information publicly available on the PinkSheets News Service. The Current Information category is based on the level of disclosure and is not a designation of quality or investment risk. This category includes shell companies or development stage companies with little or no operations as well as companies without audited financial statements and as such should be considered extremely speculative by investors.
Pink Sheets Limited Information - Distressed
Is designed for companies with financial reporting problems, economic distress, or in bankruptcy to make the limited information they have publicly available. The Limited Information category also includes companies that may not be troubled, but are unwilling to meet PinkSheets Guidelines for Providing Adequate Current Information. Companies in this category have limited financial information not older than six months available on the Pink Sheets News Service or have made a filing on the SEC's EDGAR system in the previous six months.
Pink Sheets No Information - Defunct
Indicates companies that are not able or willing to provide disclosure to the public markets - either to a regulator, a stock exchange or Pink Sheets. Companies in this category do not make Current Information available via PinkSheets News Service, or if they do, the available information is older than six months. This category includes defunct companies that have ceased operations as well as 'dark' companies with questionable management and market disclosure practices. Publicly traded companies that are not willing to provide information to investors should be treated with suspicion and their securities should be considered highly risky.
Grey Market - Dark
There are no market makers in this security. It is not listed, traded or quoted on any stock exchange, the OTCBB or the Pink Sheets. 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. Since grey market securities are not traded or quoted on an exchange or interdealer quotation system, investor's bids and offers are not collected in a central spot so market transparency is diminished and Best Execution of orders is difficult.
Written by: Goran Dolenc
Do you find this content useful? Like! Tweet! Recommend! Share!