OTC Pink is the lowest tier of the three marketplaces for trading over-the-counter stocks provided and operated by the OTC Markets Group. All broker-dealers that trade on the OTCQX, OTCQB, and OTC Pink securities have to be Financial Industry Regulatory Authority (FINRA) members. The offers that appear in this table are from partnerships from which Investopedia receives compensation. The marketplace trades a wide range of domestic and foreign companies including penny stocks, shell companies, distressed companies, and dark companies that cannot or will not provide company information to investors. It is important to note that companies are placed on this tier based on compliance with the required level and timeliness of disclosures, and not based on the strength of operations and business soundness. This can result in stocks that have less liquidity or wide bid-ask prices.

Often, these are simply shell companies set up for the sole reason of scamming investors into buying worthless shares (think The Wolf of Wall Street). The penny stock reform act sought to clamp down on fraud in non-exchange-listed stocks priced below $5 that generally trade in the over-the-counter market. Market data powered by FactSet and Web Financial Group. Analyzing OTC Pink stocks is an extremely important component of making investment decisions. OTC Markets. Recently, the OTC Pink has worked hard to improve the service by tiering companies based on level and timeliness of information. For decades, the NQB reported quotations for both stocks and bonds, publishing the quotations in the paper-based Pink Sheets and Yellow Sheets respectively.

Pink sheet companies are not usually listed on a major exchange. Instead of providing an order matchmaking service like the NYSE, these dealers carry inventories of securities to facilitate any buy or sell orders. U.S. bank reporting standard in which companies are in compliance with their bank regulator reporting. Here's one story of a penny stock scam from a few years ago that illustrates how this generally works. Companies that trade in the OTC markets are actually classified into three separate markets based on the level of financial and corporate disclosure they are willing to provide, ranging from companies that post current and ongoing financial information to companies that provide no information at all.

One problem that may be encountered is that this information may not be uniformly presented or available, so some legwork is necessary to put it all together. For instance, a company undergoing an extensive accounting review may fall on the OTC Pink because it lacks audited financials.

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The National Quotation Bureau changed its name to Pink Sheet… This means securities that trade on the OTC Pink have broker-dealers who must communicate and trade directly with each other.

The OTC Pink, now branded as the Pink Open Market, is the lowest and most speculative tier of the three marketplaces for the trading of over-the-counter stocks.

Much information can be gleaned from conversations with management teams, and determining the strength of the team while following your “gut” in whether to trust the company is invaluable. Investopedia uses cookies to provide you with a great user experience. For example, there are many larger foreign companies that list on the OTC market in order to avoid filing with the SEC. On the other hand, the lack of financial standards or reporting requirements attracts many low-priced "penny stocks" to the pink sheets, and there is massive potential for fraudulent activity, such as pump-and-dump schemes.

With the narrowing screens complete, looking for a catalyst for each name will further reduce the list of candidates. Playing in speculative stocks can be both frightening and extremely rewarding. Companies on OTC Pink are not held to particular disclosure requirements or financial standards.

There are several reasons companies list on the pink sheets, some legitimate and some not. Founded in 1993 by brothers Tom and David Gardner, The Motley Fool helps millions of people attain financial freedom through our website, podcasts, books, newspaper column, radio show, and premium investing services. A penny stock typically refers to a small company's stock that trades for less than $5 per share and trades via over-the-counter (OTC) transactions.

This can happen for a variety of reasons -- for example, their share price may have fallen below $1, or they may have failed to pay the necessary fees. This category includes defunct companies that have ceased operations as well as 'dark' companies with questionable management and market disclosure practices. OTC Markets. OTC Link allows broker-dealers not only to post and disseminate their quotes but also to negotiate trades through the system’s electronic messaging capability. This tier is used for companies with financial reporting issues, companies in bankruptcy or economic distress, as well as companies unwilling to meet the OTC Pink Basic Disclosure Guidelines. Alternative reporting standard, which is used for companies that do not follow SEC filing but still need to publish basic information to be listed according to Exchange Act Rule 15c2-11. The difference in the three levels is denoted by the amount and quality of information provided to investors. Starting with common household names and moving down the narrowed list of stocks, investors can then screen based on financial ratios such as price to sales or enterprise multiple if screening on the Current Information tier, and depending on the stage of the company and information available. By the end of this process, individual stock analysis is needed. The "Y" at the end of their ticker symbols indicates to investors that they're foreign stocks. Nestle (NASDAQOTH: NSRGY) and Nissan Motor Company (NASDAQOTH: NSANY) are two good examples of completely legitimate large-cap corporations trading on the pink sheets. Stocks labeled with the stop sign are not willing to provide information to investors and should be treated with suspicion. There are more than 10,000 stocks trading on the OTC markets. Accessed June 22, 2020. Address. Let's conquer your financial goals together...faster. Most OTC Pink companies do not follow this standard. Investopedia requires writers to use primary sources to support their work. Pink sheet companies are not usually listed on a major exchange. OTC Markets Group Inc.

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