How Do Pink Sheets Stocks Work And Are They Any Good?

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“Pink sheets” are  stocks that are trading in the over the counter (OTC) markets. Over the counter markets are well known for small cap stocks. Pink sheets and penny stocks go hand in hand, and the name pink sheets often means penny stocks to many people.

What are Pink Sheets?

Pink sheets LLC are a private company situated in New York, who are completely unlike any other exchange. Companies that do not require regulatory filing are often registered on pink sheets. A company may also choose to be listed on pink sheets if they not want to disclose certain information regarding their finances. Pink sheets LLC are able to give live time quotations for stocks in the OTCBB (Over-the -counter bulletin board).

Quotes on pink sheets are provided on a day-to-day basis. They are made by the National Quotation Bureau, and also the providers of the bid and ask prices.

Instead of companies that are existent on regular stock exchanges, pink sheet companies are not subject to a great deal of critical overlooking, for example, there are no minimum regulations that must be achieved to file with the Securities and Exchange Commission (SEC) in the pink sheets.

For more information on pink sheets, we recommend Tim Sykes’ Article on Pink Sheets.

Pink Sheets trading time and companies.

Since we know that there are not a great deal of regulations that have to be met by companies that want to be listen on the Pink sheet, this means it allows them to do so with ease. On the contrary, individual investors cannot trade directly, instead, they must go through a registered broker that complies with the standards of the Financial Industry Regulatory Authority (FINRA). Pink sheets trade between the normal hours (930am and 4pm EST), with the companies that are registered on them having the same holidays as other large exchanges. 

Who Trades on Pink Sheets?

Approximately 15,000 stocks are on the pink sheets, and represent stocks of a huge variety of companies. They range from small start-up companies, to large multinationals. Companies could be trading over the counter for a number of reasons:

– Failure to meet listing requirements for large stock exchanges or gets de-listed from one (regularly due to lacking financial information)

– Their stock may drop to too low a value

– A company from another country may not wish to meet the requirements of trading on U.S exchanges when they can do so in their native country.

Financial Requirements for Pink Sheet Companies.

A company must have filed Form 211 in order to become registered on the pink sheet. Any documents that are filed are required to be in compliance with the Generally Accepted Accounting Principles (GAAP).

Companies must have a minimum bid price of $0.25, and have at least 50 shareholders. The tiers of pink sheet listing vary, with the number of requirements increasing with the tier.

As an investor, you should be informed of some main points before trading OTC:

– The majority of OTC stocks fail to meet the minimum requirements for the majority of exchanges, and resultantly do not register with The Securities and Exchange Commission, meaning that trustworthy basic data is often unavailable to look at

– Penny stocks are often companies that are experiencing severe financial turmoil

– Some stocks are placed by scammers by issuing news and promotions. A common scam is when pink sheet investors purchase penny stocks as a result of a series of fake promotions and releases, thereby driving up their prices for other investors and then disposing of them, meaning the most recent investors are left to deal with the stock they were scammed to own. 

Are they any good and should you be trading on them?

Whether or not someone should invest on pink sheets stocks is of course up to themselves. It is however recommended that if one is looking for a long-term investment ( as most undoubtedly would be) to think carefully trading on the pink sheets – the prices are extremely changeable at short notice, and could end up a dodgy investment.

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