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Pink Sheets vs. OTC Bulletin Board Stock Trading |
You may have heard many small cap stocks described as an over-the-counter bulletin board stock, or an 'OTCBB' stock, for short. The bulletin board quotation system is indeed considered an 'over the counter' market in that there's no physical 'manned' exchange. But, it is not part of the NASDAQ stock market. Instead, the OTC Bulletin Board is a network of many market makers, each reporting current bids, offers, and completed trades to a centralized computer. The NASD has no authority over, or connection with, companies with bulletin-board-traded stocks.
OTC Bulletin Board Stocks (www.otcbb.com )
You may have heard many small cap stocks described as an
over-the-counter bulletin board stock, or an 'OTCBB' stock, for short.
The bulletin board quotation system is indeed considered an 'over the
counter' market in that there's no physical 'manned' exchange. But, it
is not part of the NASDAQ stock market. Instead, the OTC Bulletin Board
is a network of many market makers, each reporting current bids,
offers, and completed trades to a centralized computer. The NASD has no
authority over, or connection with, companies with
bulletin-board-traded stocks.
One source of confusion is that OTC Bulletin Board stocks can be
traded or quoted via most NASDAQ data feeds. In fact, to the retail
investor, NASDAQ-listed and bulletin board stocks behave identically.
That's simply the power of technology though....the quotes you retrieve
and the trades you make for OTCBB stocks are not actually handled by
the NASDAQ's computers, but rather through the bulletin board's closed
computer network. The aggregate result is a reasonably orderly system
of trading bulletin board stocks.
The OTCBB could be considered a nearly identical to the NASDAQ's
bid/ask technology, however, there's a significant difference - trades
done with NASDAQ stocks are actually processed by the exchange; trades
done on OTCBB stocks are handled directly by market makers....the board
simply 'introduces' the two parties and the market makers make the
trades.
Unlike a NASDAQ listing, a company desiring to have its stock trade as
a bulletin board stock has no exchange to negotiate with...they have to
do it through one of the participating OTCBB market makers.
Despite the differences, there are some important commonalities between
the OTCBB and NASDAQ markets. Both have similar SEC filing
requirements. Any public disclosure and documentation you can expect
from NASDAQ-listed companies can also be expected from companies with
stocks trading as OTCBB issues. This information is usually accessible
through EDGAR
(http://www.sec.gov/edgar/searchedgar/webusers.htm ). If a company does not report, they will soon be removed from the OTCBB system.
Pink Sheets Stocks (www.pinksheets.com )
So where do pink sheet stocks fit in? This market (technically, it's a
quotation service) is actually run by a company called Pink Sheets LLC,
and is yet another computerized over-the-counter market, though with
several key differences. Like OTCBB stocks, only a market maker can
list and provide quotes for a Pink Sheet equity.
What are the Differences? There are essentially no size or
registration requirements for a stock to trade on the Pink Sheets. And,
a Pink Sheet listing does not preclude being listed on other exchanges.
The biggest difference, though, is the lack of SEC filing requirements.
Pink Sheet companies DO NOT have to provide disclosure of their
financial results and material information (though they are strongly
encouraged by Pink Sheets LLC to do so). On the other hand, they aren't
forbidden to file these documents. Many company’s looking to move from
the Pink Sheets to the OTCBB or AMEX or Nasdaq exchanges will begin
reporting as a Pink Sheets company to get all their reporting
infrastructure and audits done to begin the process of qualifying for
the OTCBB or a larger stock exchange.
As a consequence, many Pink Sheets companies voluntarily submit
quarterly and annual filings. The goal is to establish credibility with
the marketplace, and perhaps make it easier to achieve a bulletin board
or exchange-listing in the future. So, investors should not totally
avoid pink sheet stocks simply due to a lack of exchange or SEC
regulatory requirements. You may find many Pink Sheet equities with
full disclosure, and in some cases, far better results than OTCBB or
even exchange-listed companies. But as always, do your own homework and
consider you stock trading prospects on a case-by-case basis.
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