The Pink Sheets
were first established in the early part of the 20th century as the National Quotation Bureau (NQB), but now are known as OTC Markets Group
. The company reported and published listings and quotes for tradable securities. The publications got their names from the color of paper they were printed on, both Yellow and Pink Sheets.
Technically, Pink Sheets is not an actual stock exchange, but a means for qualified independent brokers to exchange securities. Generally, it is now known as a platform to trade penny stocks
, and other micro cap stocks, which is stock of public companies
which have a market capitalization of roughly $300 million or less.
While most companies quoted by Pink Sheets do not file financial reports with the Securities and Exchange Commission (SEC)
, the companies listed in the Pink Sheets OTCQX
tier provide substantial disclosure to the marketplace, and are considered to be the top tier of the over-the-counter (OTC) market. The rest of the tiers, ranked from highest to lowest based on the amount of information they make available to the market, are as follows:
- Current Information
- Limited Information
- No Information
- Caveat Emptor
Blue Chips on OTCQX
While most companies quoted in the Pink Sheets tend to be small companies that trade at low volume, not all of them are penny stocks. Companies in the OTCQX and OTCQB tiers are worthy of investor consideration even though they are micro cap stocks, and include larger, well-known companies like Roche, Adidas, and Deutsche Telekom.
Pink Sheets Penny Stocks
Most of the companies below the "Current Information" tier of the Pink Sheets are generally penny stocks and micro cap stocks that do not meet the minimum listing requirements for trading on the major U.S. exchanges, might be close to bankruptcy and are typically seen as riskier investments.
In fact, micro cap stocks and penny stocks are notorious for their volatility. Penny stocks and micro cap stocks can also be affected by price manipulation and it may be extremely difficult to liquidate bought positions of both penny stocks and micro cap stocks.Investors, however, should not be turned off to the investment opportunities of the Pink Sheets, as there are many good companies to be found among the penny stocks and the micro cap stocks. Be aware, however, of penny stocks and micro cap stocks scams, and do diligent research before buying.