The absolute
|
The absolute
|
When a company qualifies to be on the OTCBB and is a reporting company (that is, submitting it's audited quarterly and yearly data to the U. S. government), then you can access its financial data on the SEC's EDGAR server -- right along side General Motors and Microsoft! An experienced investor has a chance to access data necessary to decide if this company is a good investment in his case. By contrast companies listed on the "pink sheets" rather than the OTCBB are not required to report to the government. If a pink sheets company does not want to make its figures readily available it can be difficult to reasearch them.
However, the OTCBB is still living down a poor reputation gained in its totally unregulated past. Created in 1990 to give smaller companies better access to capital formation, and starting with a group of 4,000-some companies, the OTCBB quickly grew to list over 6,600 companies!
Until 1999, OTCBB companies were not required to submit data to the government. Unfortunately, some OTCBB companies used questionable practices to promote their stock. To eliminate many of the abuses and scams which proliferated involving OTCBB companies, in January 1999 the SEC allowed NASDAQ to require that ALL be reporting companies. (For further ideas on this subject, and ways to avoid scams, read the page on Investing in Small Companies from Wall-Street.com.)
After requiring government filings, in spite of the fact that a number of companies left the OTCBB for the Pink Sheets, there were still about 4,000 companies. Until mid-2000 many new IPOs were added to the OTCBB. Also, In 1998 NASDAQ tightened its standards for being listed on their NMS and SMC market systems so that many of those companies became listed on the OTCBB. Each year about half of the OTCBB was new! Next, with the 2000 -2001 crash in Internet companies, even more stocks moved from NASDAQ to the OTCBB. And yet more moved from the OTCBB to the Pink Sheets. During that era about 75% percent of the OTCBB listings changed yearly!
In spite of the ups and downs in companies listed, there has been a huge gain in daily share volume and market volume over the years. Not surprisingly, there has been an overall gain in OTCBB companies and Pink Sheets covered by major financial Websites.
During 2001 NASDAQ began negotiating with the SEC to become an exchange. At the same time they planned to replace the OTCBB with a new system having some corporate governance standards plus defined listing standards compliant with the newly enacted Sarbanes-Oxley Act. In July 2003 NASDAQ discontinued these plans.
However, this does not mean that OTCBB companies can ignore Sarbanes-Oxley! Although they are exempt from some of the requirements, they must live up to most of them. As of July 15, 2006 the smaller companies must comply with the toughest part -- Section 404, which requires that a company demonstrate sound financial controls and test those controls regularly. As this can be costly, some emerging companies can no longer afford to report to the SEC or have decided to spend the money on developing their product instead. These companies either go private or decide to continue trading on the Pink Sheets.
Many people feel the SOX requirements are too strict and are trying to persuade the government to modify the law; therefore at some time the SEC may decide to again postpone and/or modify the Section 404 requirements.
The Pink Sheets began in 1904 when the National Quotation Bureau (NQB) printed an inter-dealer quotation service printed on pink paper. At one time, if you wanted a stock quote you looked at prices on the NYSE, AMEX and the Pink Sheets. During the '70's, 80's and '90's the NQB was owned by a publishing house which had no interest in developing more sophisticated methods of electronic quotation. The Pink Sheets remained a paper quotation service for smaller, shakier, usually illiquid, companies and did not participate in the great economic surge of midcap and smaller listed stocks. Therefore NASDAQ, founded by the Nat'l. Assn. of Securities Dealers in 1971, grew immensely to fill the gap! When, at the SEC's request, NASDAQ took on the task of creating the OTCBB for smaller companies, this service also grew but not to the same extent.
Then, in 1997 the NQB was purchased by new owenrs and changed its name officially to Pink Sheets in the year 2000. More importantly, they immediately developed electronic products and information services which have greatly facilitated trade and improved the transparency of the OTC markets. In many ways, companies on the Pink Sheets, today, enjoy more advanced systems and services than were offered on the OTCBB in 1990! Indeed, the Pink Sheets came to resemble the early years of the OTCBB with a "Wild West" environment consisting of many types of companies, of many sizes, good and bad, active and inactive.
In 2006 the Pink Sheets initiated another important change with the launching of their OTCQX. This is a premium quotation, trading, and disclosure service for OTC securities which gives strong public companies a vehicle to provide ongoing disclosure. It helps serious issuers stand out from the almost 5,000 OTC securities electronically traded on the Pink Sheets. This new market is further divided into: (1) PremierQXSM - The highest tier, identifies issuers that are of the size and quality to list on a National Stock Exchange and that have a minimum bid of $1; and (2) PrimeQXSM - Identifies issuers that are operating companies with audited financials, but not of sufficient size to be on PremierQX. When does a company have "ongoing operations" so as to qualify for the OTCQX? Probably when it has income from sales and enough working capital to carry it forward for the next 12 months. Next we have the (3) International OTCQX Visa Program - A streamlined admission process to OTCQX for international issuers that are listed on a qualified foreign stock exchange.
A critical component of the premium tiers is the role of Designated Advisors for Disclosure (DADs), which each issuer must appoint prior to being admitted to OTCQX. The DAD requirement introduces to U.S. investors the protections of a professional "gatekeeper" for secondary market disclosure. The DAD for an OTCQX-listed company is required to participate in the preparation of the company's disclosure statements and prevent issuers with inadequate or questionable disclosure from joining OTCQX. Companies on the OTCQX tiers are identified at pinksheets.com by a Qx symbol.
Pink Sheets offers additional tiers. The Adequate Current Information tier is identified by a Ps symbol.This serves companies who are not right for the OTCQX and/or who can't afford a DAD. The company will, however, be publishing regular financials and news releases at pinksheets.com. This tier also allows shells making it easier for private companies to find and evaluate potential reverse-merger partners. These companies make an honest attempt to publish ongoing financial information; however many do not have the budget to afford an audit. At some point Pink Sheets LLC may split this tier in two, creating an additional category, the Emerging Equities List, for those companies who do have audits.
Investors should be wary of companies on the three bottom tiers. The Limited Information Tier is signaled by a Yield Sign, warning investors to proceed with caution. Past that is the No Information Tier, signaled by a Stop Sign. At the very bottom is the Public Information Concern tier, signaled by a Skull & Crossbones. These are companies whose stocks are being touted by pump and dump operators.
There are 2 other symbols you will see at pinksheets.com. Since OTCBB companies (reporting to the SEC) also trade on the pinks, they are identified with a PB. As the pinksheets system also processes trades for companies other exchanges (NASDAQ, AMEX, NYSE, and the grey market) these companies are indicated by a grey triangle. The triangle does not always mean this is a grey market stock. This could be a listed company.
We started this Website in the mid-90's due to a lack of information on microcaps. Today there are a number of ways to research truly active smaller companies. Since it is becoming increasingly easy to distinguish those microcap companies who have something to offer, we look forward to more and more interest in this sector. Overall, we plan to keep a sensible, basic approach to investment research.