Intro To Pink Sheets
Well-established companies and corporations often choose to float their stocks on the one of the foremost stock markets such as the New York Stock Exchange or NASDAQ. However, in order to begin trading on these major stock exchanges a company must be listed and this entails being approved of by a regulatory authority. Listing regulations vary from stock exchange to stock exchange, but generally a high level of transparency is always required. Pink Sheets and the Over The Counter Bulletin Board (OTCBB) offer an alternative method of trading stocks which doesn’t require meeting particularly high standards, nor do they require the same level of transparency needed for a major stock exchange.
Trading via these two methods is called Over The Counter trading because it is done directly between two brokers as opposed to through a major stock exchange. Although Pink Sheets and OTCBB do offer similar facilities the two have some crucial differences and it is generally considered that the Pink Sheets are more suitable for smaller companies and those that wish their details to remain private.
Pink Sheets started in 1913 and are so called because initially the stock prices provided by the National Quotation Bureau were printed on pink paper. Since the year 2000 the system has been electronic and nowadays it is controlled by the Pink OTC Markets. Because the Pink OTC Market is not a stock exchange, companies who wish to be quoted do not need to meet any minimum requirements and they do not have to make any of their details public, e.g. their budget or current financial situation. This affords companies a much greater freedom and privacy because all the trading of their stocks is done Over The Counter and is not made public as it would be on a stock exchange. Essentially, the Pink Sheets are there to provide bid and ask quotes for companies who are not listed and to allow unregulated trading.
As such, Pink Sheets are often controversial because investors can struggle to glean any information on a company using them and it therefore becomes a very risky investment because such a high level of privacy is allowed.
Similarly, the OTCBB is an electronic quotation system that provides data for Over The Counter trading for companies who are not registered with one of the major stock exchanges. However, the crucial difference between OTCBB and the Pink Sheets is that whilst companies are using OTCBB they are obligated to meet the regulations and requirements set by the Securities and Exchange Commission (SEC). These obligations are much easier to meet than those set by the major stock exchanges although they do ensure that much more information is available to investors than for those companies using Pink Sheets. Often a company will begin to use OTCBB when it becomes de-listed and can no longer meet the strict requirements to float its stocks on an exchange.
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