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The Risks of Investing In Penny Stocks
The first thing you as a new investor should be aware of is the high risk involved with small cap investing. When you buy a company like CSCO, IBM, MSFT, GE, or DELL, you are buying a quality company, backed by big names and run by hundreds of managers and consultants. Small cap companies are often run by only a handful of people. Often there is the CEO/founder/president, perhaps a COO and a few other employees. The first thing you as a n ... -
Could Rising Interest Rates Derail The Economic Recovery?
Now that an economic recovery appears likely, the markets have a new bogey-man theyre concerned aboutHigher Interest Rates. In the governments attempt to finance the economic recovery by selling billions of dollars of debt, interest rates have been steadily climbing of late. In fact, the resulting selloff in Treasury prices has not only pushed up their yields, but pushed up the all-important mortgage rates as well. This is already slowing ...
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| Pink Sheets vs. OTC Bulletin Board Stock Trading |
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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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