Pink Sheets May Be Small But Mighty
Stocks that trade on the Pink Sheets Stock Exchange are often referred to as “Pink Sheets” or “Pinkies”. In fact, Pink Sheets don’t trade on an actual exchange; Pink Sheets appear on an electronic quotation system (the “Pink Quote”) that displays quotes from broker dealers for many over-the-counter (OTC) securities.
Brokers use the Pink Quote to publish their bid and ask prices for investors who buy and sell OTC securities. The quotes are then published electronically by Pink OTC Markets, Inc. In the beginning the quotes were printed on pink paper, which is why they became named “pink sheets”.
The basic difference between the Pink Sheets Stock Exchange and the major exchanges is that the SEC does not oversee the Pink Sheets Stock Exchange. This gives many companies looking to move from the Pink Sheets exchange to the AMEX or NASDAQ boards a chance to get their reporting system in order before applying to the big exchanges.
Many Pink Sheets are small companies, often undervalued, and usually overlooked by Wall Street analysts. Most do not meet the minimum listing requirements for trading on a national securities exchange, such as the New York Stock Exchange or the NASDAQ Stock Market.
However, this isn’t always the case. Some large foreign companies voluntarily list themselves as Pink Sheets to avoid having to disclose proprietary information to the SEC. In fact, companies as large as Nestle S.A. moved into the American securities markets using the Pink Sheets Stock Exchange.
A Pink Sheets listing does not mean the company can’t get listed on the other exchanges. Although Pink Sheet companies do not have to disclose their financial results and material information, they’re not forbidden to do so. In fact, the Pink Sheets Stock Exchange encourages companies trading on the exchange to file the same type of documentation required by the larger exchanges.
For most investors, though, the biggest advantage of buying Pink Sheets is that these stocks are normally value-priced. This means that owning a few hundred shares usually doesn’t cost very much.
There are many other reasons to consider Pink Sheets. Our analysis team at Cheap Stock Alert,for instance, looks for a company with lots of potential for growth and a substantial opportunity to seize a dominating position in their market. You can view our next Pink Sheets recommendation when you subscribe to our free stock alert on the right. There’s no obligation to subscribe, and we particularly recommend it for the serious pink sheets stock trader.