Pink Sheets
Encyclopedia
OTC Markets Group, Inc., informally known as "Pink Sheets", is a private company that provides services to the U.S. over-the-counter
(OTC) securities market including electronic quotations, trading, messaging, and information platforms. According to the U.S. Securities and Exchange Commission, OTC Markets Group, Inc. is not a stock exchange. The company simply facilitates the exchange of securities between qualified independent brokers.
. To be quoted via Pink Sheets, companies do not need to fulfill any requirements (e.g. filing
financial statements
with the SEC
). With the exception of foreign issuers
, mostly represented by ADR
s, 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 audit
ed 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 Pink Sheets as "among the most risky investments
" and advises potential investors to heavily research
the companies in which they plan to invest.
companies that have operating businesses and provide substantial disclosure to the marketplace. Although OTCQBX companies are not SEC reporting entities, they must provide audited financials and certain disclosures to Pink OTC Markets. OTCQB is the middle tier of the OTC market. OTCQB companies are reporting with the SEC or a U.S. banking regulator, making it easy for investors to identify companies that are current in their reporting obligations. There are no financial or qualitative standards to be in this tier.
system in the previous six months. This category includes shell companies or development stage companies with little or no operations as well as companies without audit
ed financial statement
s and as such should be considered extremely speculative
by investors.
.
or Pink Sheets. Companies in this category do not make Current Information available via Pink Sheets 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.
campaign, stock promotion or known investigation of fraudulent
activity committed by the company or insider
s. During a spam campaign, any stock that is not in the Current Information category will also have its quotes blocked on pinksheets.com.
(OTCBB) is a listing of securities that are also traded "over the counter" similar to the Pink Sheets, but unlike Pink Sheet companies, OTCBB companies are required to file timely reports with the U.S. Securities and Exchange Commission. Many OTCBB companies are also quoted via Pink Sheets' electronic quotation system.
(SRO), which then passes the data on to market data companies.
Over-the-counter (finance)
Within the derivatives markets, many products are traded through exchanges. An exchange has the benefit of facilitating liquidity and also mitigates all credit risk concerning the default of a member of the exchange. Products traded on the exchange must be well standardised to transparent trading....
(OTC) securities market including electronic quotations, trading, messaging, and information platforms. According to the U.S. Securities and Exchange Commission, OTC Markets Group, Inc. is not a stock exchange. The company simply facilitates the exchange of securities between qualified independent brokers.
History
The company was first established in 1913 as The National Quotation Bureau (NQB). For decades, the NQB reported quotations for both stocks and bonds, publishing the quotations in the paper-based Pink Sheets and Yellow Sheets respectively. The publications got their names from the color of paper they were printed on.Regulatory status
Pink Sheets is not a stock exchangeStock exchange
A stock exchange is an entity that provides services for stock brokers and traders to trade stocks, bonds, and other securities. Stock exchanges also provide facilities for issue and redemption of securities and other financial instruments, and capital events including the payment of income and...
. To be quoted via Pink Sheets, companies do not need to fulfill any requirements (e.g. filing
SEC filing
An SEC filing is a financial statement or other formal document submitted to the U.S. Securities and Exchange Commission . Public companies, certain insiders, and broker-dealers are required to make regular SEC filings. Investors and financial professionals rely on these filings for information...
financial statements
Financial statements
A financial statement is a formal record of the financial activities of a business, person, or other entity. In British English—including United Kingdom company law—a financial statement is often referred to as an account, although the term financial statement is also used, particularly by...
with the SEC
United States Securities and Exchange Commission
The U.S. Securities and Exchange Commission is a federal agency which holds primary responsibility for enforcing the federal securities laws and regulating the securities industry, the nation's stock and options exchanges, and other electronic securities markets in the United States...
). With the exception of foreign issuers
Issuer
Issuer is a legal entity that develops, registers and sells securities for the purpose of financing its operations.Issuers may be domestic or foreign governments, corporations or investment trusts...
, mostly represented by ADR
American Depositary Receipt
An American depositary receipt is a negotiable security that represents the underlying securities of a non-U.S. company that trades in the US financial markets...
s, the companies quoted in the Pink Sheets tend to be closely held, extremely small, thinly traded
Trader (finance)
A trader is someone in finance who buys and sells financial instruments such as stocks, bonds, commodities and derivatives. A broker who simply fills buy or sell orders is not a trader, as they are merely executing instructions given to them. According to the Wall Street Journal in 2004, a managing...
, or bankrupt. Most do not meet the minimum U.S. listing requirements for trading on a stock exchange
Stock exchange
A stock exchange is an entity that provides services for stock brokers and traders to trade stocks, bonds, and other securities. Stock exchanges also provide facilities for issue and redemption of securities and other financial instruments, and capital events including the payment of income and...
such as the New York Stock Exchange
New York Stock Exchange
The New York Stock Exchange is a stock exchange located at 11 Wall Street in Lower Manhattan, New York City, USA. It is by far the world's largest stock exchange by market capitalization of its listed companies at 13.39 trillion as of Dec 2010...
. Many of these companies do not file periodic reports or audit
Audit
The general definition of an audit is an evaluation of a person, organization, system, process, enterprise, project or product. The term most commonly refers to audits in accounting, but similar concepts also exist in project management, quality management, and energy conservation.- Accounting...
ed financial statements
Financial statements
A financial statement is a formal record of the financial activities of a business, person, or other entity. In British English—including United Kingdom company law—a financial statement is often referred to as an account, although the term financial statement is also used, particularly by...
with the SEC, making it very difficult for investors
Investment
Investment has different meanings in finance and economics. Finance investment is putting money into something with the expectation of gain, that upon thorough analysis, has a high degree of security for the principal amount, as well as security of return, within an expected period of time...
to find reliable, unbiased information about those companies.
For these reasons the SEC views companies listed on Pink Sheets as "among the most risky investments
Speculation
In finance, speculation is a financial action that does not promise safety of the initial investment along with the return on the principal sum...
" and advises potential investors to heavily research
Research
Research can be defined as the scientific search for knowledge, or as any systematic investigation, to establish novel facts, solve new or existing problems, prove new ideas, or develop new theories, usually using a scientific method...
the companies in which they plan to invest.
Pink Sheets market tiers
Pink Sheets established a categorization system to indicate the level of financial and corporate disclosure provided by the companies using its quotation system. The disclosure categories do not signify issuer quality or merit of any security. Categorization is based on the level and timeliness of a company's disclosure and any category can include speculative, distressed, or questionable companies. Investors are encouraged to use caution when considering these companies for investment.OTCQX
OTCQX is the top tier of the OTC market. Exclusively for companies that meet financial standards and undergo a qualitative review. Investor focused companies use the quality-controlled OTCQX platform to offer investors transparent trading, superior information, and easy access through their regulated U.S. broker-dealers. OTCQX is a market tier is for domestic (U.S.) companies registered with and reporting to the Securities and Exchange Commission or a banking or insurance regulator.OTCQB
The OTCQB tier designates OTC-tradedOver-the-counter (finance)
Within the derivatives markets, many products are traded through exchanges. An exchange has the benefit of facilitating liquidity and also mitigates all credit risk concerning the default of a member of the exchange. Products traded on the exchange must be well standardised to transparent trading....
companies that have operating businesses and provide substantial disclosure to the marketplace. Although OTCQBX companies are not SEC reporting entities, they must provide audited financials and certain disclosures to Pink OTC Markets. OTCQB is the middle tier of the OTC market. OTCQB companies are reporting with the SEC or a U.S. banking regulator, making it easy for investors to identify companies that are current in their reporting obligations. There are no financial or qualitative standards to be in this tier.
OTC Pink — The Speculative Trading Marketplace
OTC Pink is the third tier of the OTC market. OTC Pink is the speculative trading marketplace that has no financial standards or reporting requirements. OTC Pink companies choose the level of information they provide to investors and may have current, limited or no public disclosure.Current Information
The Current Information tier indicates companies that have submitted information no older than six months to the Pink Sheets News Service or have made a filing on the SEC's EDGAREDGAR
EDGAR, the Electronic Data-Gathering, Analysis, and Retrieval system, performs automated collection, validation, indexing, acceptance, and forwarding of submissions by companies and others who are required by law to file forms with the U.S. Securities and Exchange Commission...
system in the previous six months. This category includes shell companies or development stage companies with little or no operations as well as companies without audit
Audit
The general definition of an audit is an evaluation of a person, organization, system, process, enterprise, project or product. The term most commonly refers to audits in accounting, but similar concepts also exist in project management, quality management, and energy conservation.- Accounting...
ed financial statement
Financial statement
A financial statement is a formal record of the financial activities of a business, person, or other entity. In British English—including United Kingdom company law—a financial statement is often referred to as an account, although the term financial statement is also used, particularly by...
s and as such should be considered extremely speculative
Speculation
In finance, speculation is a financial action that does not promise safety of the initial investment along with the return on the principal sum...
by investors.
Limited Information
The Limited Information tier is designed for companies that are unwilling or unable to meet Pink Sheets' Guidelines for Providing Adequate Current Information. Companies in this tier have submitted some but not all of current information required. These are often companies with financial reporting problems, economic distress, or in bankruptcyBankruptcy
Bankruptcy is a legal status of an insolvent person or an organisation, that is, one that cannot repay the debts owed to creditors. In most jurisdictions bankruptcy is imposed by a court order, often initiated by the debtor....
.
No Information
This tier indicates companies that are unwilling or unable to provide disclosure to the public markets - either to a regulator, a stock exchangeStock exchange
A stock exchange is an entity that provides services for stock brokers and traders to trade stocks, bonds, and other securities. Stock exchanges also provide facilities for issue and redemption of securities and other financial instruments, and capital events including the payment of income and...
or Pink Sheets. Companies in this category do not make Current Information available via Pink Sheets 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.
Caveat Emptor - Buyer Beware
There is a public interest concern associated with the company. This may include a spamSpam (electronic)
Spam is the use of electronic messaging systems to send unsolicited bulk messages indiscriminately...
campaign, stock promotion or known investigation of fraudulent
Securities fraud
Securities fraud, also known as stock fraud and investment fraud, is a practice that induces investors to make purchase or sale decisions on the basis of false information, frequently resulting in losses, in violation of the securities laws....
activity committed by the company or insider
Insider
An insider is a member of any group of people of limited number and generally restricted access. The term is used in the context of secret, privileged, hidden or otherwise esoteric information or knowledge: an insider is a "member of the gang" and as such knows things only people in the gang...
s. During a spam campaign, any stock that is not in the Current Information category will also have its quotes blocked on pinksheets.com.
OTCBB
The OTC Bulletin BoardOTC Bulletin Board
The OTC Bulletin Board or OTCBB is an interdealer electronic quotation system in the United States that displays real-time quotes, last-sale prices, and volume information for many over-the-counter equity securities that are not listed on the NASDAQ stock exchange or a national securities exchange...
(OTCBB) is a listing of securities that are also traded "over the counter" similar to the Pink Sheets, but unlike Pink Sheet companies, OTCBB companies are required to file timely reports with the U.S. Securities and Exchange Commission. Many OTCBB companies are also quoted via Pink Sheets' electronic quotation system.
Grey Market
Securities that are not listed on any stock exchange nor formally quoted via the OTCBB or Pink Sheets are considered to be in the Grey Market. Unsolicited transactions are processed independently and not centrally listed or quoted. Trades are reported to a self-regulatory organizationSelf-regulatory organization
A self-regulatory organization is an organization that exercises some degree of regulatory authority over an industry or profession. The regulatory authority could be applied in addition to some form of government regulation, or it could fill the vacuum of an absence of government oversight and...
(SRO), which then passes the data on to market data companies.