Pink Sheet Stocks Good for Tough Times
“Pink Sheet stocks” (which end in the suffix .PK.) are stocks traded on the Pink Sheets Stock Exchange (also called the “Pink Quote” or the “Pink Sheets”).
The Pink Sheets Stock Exchange is not an actual stock exchange; it is an electronic quotation system; and it is not a registered stock exchange. As such, it is not regulated by the Securities and Exchange Commission (SEC). In spite of that, all brokers who use the Pink Sheets to post quotes must follow National Association of Security Dealers (NASD) regulations and they be fully licensed through the NASD.
Companies that list themselves as Pink Sheet stocks can be traded on regular stock exchanges, such as the NYSE and NASDAQ. However, many Pink Sheet stocks are companies too small or too new to meet the requirements of the large exchanges. The Pink Sheets has no listing requirements, so emerging or new companies are allowed to list themselves.
This means that even companies with no financial history can be listed, so investors should proceed with care. Companies on the Pink Sheets may be seeking to raise early capital through stock offerings by listing themselves as Pink Sheet stocks. Even so, these companies must still follow all Federal and State security laws.
This is why many Pink Sheet stocks are penny stocks – available for less than $5 per share. Because some Pink Sheet stocks are new companies with little or no financial history, investors should be careful when purchasing these stocks, and never use more than they can afford to lose. Pink sheet stocks can be very profitable, but they can also be risky. This is particularly true for new investors who have not yet adjusted to the rough and tumble conditions of today’s volatile market.
The very volatility of the market though, has changed the type of companies to be found in the Pink Sheets. Where once a “Pink Sheet stock” meant an unknown and possibly unreliable company, today it may mean quite the opposite. Many big names have taken a hit because of the weak economy and moved to the Pink Sheets.
Marc Beauchamp, the executive director of the North American Securities Administrators Association, one of the oldest groups devoted to investor education and protection, put it this way: “It’s a bit like having to move out of your house in Beverly Hills to an industrial park 20 miles east of downtown L.A.,” he said. “It’s not where you want to be, but at the same time it is not the end of the world.”
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