Penny Stock Basics

What is the “Over-the-Counter” (OTC) market?

Stocks that do not trade on recognized national stock exchanges, such as the New York Stock exchange American Stock Exchange trade in markets described as “over-the-counter” (OTC). The OTC market is less stringent than national exchanges when it comes to matters such as listing requirements and clarity of investor information. The OTC market exists primarily to give small companies access to public investor capital.

What Is The OTC Bulletin Board?

The OTCBB is an acronym for the Over-the-Counter Bulletin Board. This OTC bulletin Board is described is an electronic quotation system for small companies. This Electronic Quote System displays Bid, Ask and daily volume to subscribing Broker-Dealers.

Are There Any Minimum Listing Standards That Must Be Met In Order To List On The NASDAQ OTCBB Bulletin Board?

The only requirement the OTCBB requires for companies to be fully reporting with the SEC. All filings can be viewed on the SEC EDGAR system.

What Are The Pink Sheets?

The Pink Sheets, like the Over-the-Counter-Bulletin Board (OTCBB), is an electronic quotation system. The Pink Sheets present quotes from broker dealers for many over-the-counter (OTC) securities. The Pink Sheets are useful for brokers to publish their bid and ask quotation prices. A privately owned company, Pink Sheets LLC, publish the Pink Sheets. The Pink Sheets electronic quotation system is not registered with the Securities Exchange Commission (SEC) and neither is the company a broker-dealer of the Financial industry Regulatory Authority . (FINRA). The Pink Sheets used to be published daily on pink paper and distributed to broker-dealers. This is where the name Pink Sheets originated. Since the electronic age the distribution of printed pages has ceased and all quotation information is available on line.

Are There Any Listing Requirements To List In The Pink Sheets?

Pink Sheets listing requirements are very minimal. Some disclosure must be made before listing but it is virtually non-existent.

What is FINRA? Financial industry Regulatory Authority

FINRA (http://www.finra.org/index.htm)is the largest independent regulator for all securities firms doing business in the United States. They oversee nearly 5,000 brokerage firms, 173,000 branch offices and 659,000 registered securities representatives. Their chief role is to protect investors by maintaining the fairness of the U.S. capital markets

What Is The SEC?

The acronym SEC stands for the United States Securities and Exchange Commission SEC. The primary mission of the U.S. Securities and Exchange Commission (SEC) is to protect investors and maintain the integrity of the securities markets. As more and more first-time investors turn to the markets to help secure their futures, pay for homes, and send children to college, these goals are more compelling than ever. The SEC operates on the premise that it is only through the steady and comprehensive stream of accurate and reliable information that can people make investment choices of a sound and effective nature. The SEC exists primarily to devise rules and regulations that protect potential investors.

What Is A Penny Stock?

The term ‘Micro-cap Stock’ is used to refer to stocks that are low priced. Low priced, in this case, refers to stocks that sell at, or less than, five dollars. Micro-cap Stocks generally trade in what is referred to as the Over-the-Counter (OTC) market, which would include the OTC Bulletin Board or the Pink Sheets.

Where Do Penny Stocks Trade?

Penny Stocks trade in the Over-The-Counter market generally on the NASDAQ Small Cap, OTC Bulletin Board (OTCBB), or the Pink Sheets. Penny Stocks generally do not trade on the National Stock Exchanges, such as NASDAQ or the NYSE.

How Are Penny Stocks Different From Other Stocks?

The biggest differences between Penny Stocks and other stocks relate to a lack of public information, listing requirements and investment risk. Many Penny Stocks do not have the same reporting requirements with the SEC as stocks trading on National Exchanges. Companies on the OTCBB or the Pink Sheets do not have less stringent listing requirements, whereas companies that trade their stocks on major exchanges have requirements relating to total assets, minimum net assets, a minimum number of shareholders and total market capitalization. Penny Stock investments tend to be high risk because the companies tend to be new and have little or no proven track record.

Are Penny Stock Investments Risky?

Yes, all stock investments are risky! Especially Penny Stocks or any other company with little or no operating history.

Then Why Penny Stocks?

Penny stocks tend to more thinly traded than their big brothers on national exchanges. Because of this they react to react well to news and exposure. This is exactly what you need to be able to profit in this area and why these are the stocks we follow.