What is a pink sheet traded stock?

By: ispeculatornew
Date posted: 04.26.2011 (5:00 am) | Write a Comment  (6 Comments)

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I am confident that while most of you have never traded a pink sheet stock, you have heard of them, know a few of the companies and have stumbled upon a few of the symbols over time. I will be discussing one of these stocks tomorrow and expected to get a few questions regarding the pink sheet stocks so I took the liberty of answering some of them before you even ask. Hopefully it helps and I’ll be more than happy to give a shot at any unanswered ones.

What is a pink sheet stock?

In the US markets, there exist a few stock exchanges such as the New York Stock Exchange (NYSE) and the Nasdaq. Companies can become listed on these exchanges by doing a variety of things that include:

-Having a balance sheets and sales numbers that fit the exchanges requirements
-Paying annual fees to get listed
-Fulfilling a variety of listing requirements such as Sorbanes-Oxley

All of these require both time and resources and some companies choose to not be listed for a variety of reasons. Many choose to do so because the costs involved are too important to be worth it. But others simply choose not to or they get kicked off of the exchanges for different reasons that would include insufficient trading volume.

Are these pink sheet companies all tiny companies?

Not at all. To give one example, Nestle, the giant food company is not traded on US stock exchanges but it is traded in the pink sheet market.

Is there any volume or liquidity on these companies?

Like anything else, it really depends on each stock. For example, Nestle (NSRGY) often trades over 1 million shares per day giving shareholders all kinds of liquidity. So like everything else it depends on volume.

What are some concerns with trading pink sheet stocks?

I would say that a major one is that since accounting standards are not the same, you have to be careful about comparing numbers from these companies to other ones as standards could be significantly different. If the stock trades on other major markets it becomes less of a concern. Nestle for example is traded on Swiss markets.

Another concern is that many pink sheet stocks become unlisted because they are in financial trouble and are unable to satisfy the stock exchanges requirements. These stocks must then move to pink sheet markets.

Who regulates this market?

Because Pink Sheets stocks are considered to be over the counter (OTC), there are very few rules and laws that apply to these stocks. Because of that, price manipulation is a bigger problem.

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6 Comments

  1. Comment by Zavi — April 26, 2011 @ 12:18 pm

    I am doubtful in investing in pink sheet traded stock! Don’t you think this is a very risky investment and really speculative… I rather invest in a stock that I can check their financial statements than a pink sheet that limited information to no information… and because there are no regulators, you need to be prudent that the tiny information that you have is accurate! looking forward your next post!

  2. Comment by IntelligentSpeculator — April 27, 2011 @ 4:32 am

    @Zavi – It depends but in some cases yes. For stocks that are listed on credible exchanges (such as most European ones), I would trust their financial statements almost as much..even though standards could be slightly different.

  3. […] What is a pink sheet traded stock? […]

  4. Comment by Doable Finance — May 1, 2011 @ 8:04 am

    Simply put,
    Pink Sheets is not a stock exchange. It is a private company and is Over The Counter (OTC) market. Companies do not need to fulfill any special requirements like in NYSE or NASDAQ.

  5. Comment by IS — May 1, 2011 @ 5:15 pm

    @Doable Finance – Yes all true, do you trade any pink sheets?

  6. Comment by business review — May 4, 2011 @ 4:31 am

    Pink Sheets refer to the trading of stocks that are not listed on a major exchange or the due to the lack of minimum listing re . Pink Sheets refer to the trading of stocks that are not listed on a major exchange or the due to the lack of minimum listing requirements or filing financial statements with the SEC Securities Exchange Commission .

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