Pink Sheets

Encyclopedia : P : PI : PIN : Pink Sheets

Pink Sheets is an electronic system, published by Pink Sheets LLC, to display bid and ask quotation prices. The name "Pink Sheets" stems itself from an earlier paper-based system, which was printed on pink paper. It is mainly used by stock brokers trading OTC securities.

Pink Sheets LLC is neither an NASD broker-dealer, nor registered with the U.S. Securities and Exchange Commission; it is not a stock exchange, the companies listed do not need to fulfill any requirements. With the exception of a few foreign issuers, the companies quoted in the Pink Sheets tend to be closely held, extremely small and/or thinly traded. 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. Many of these companies do not file periodic reports or audited financial statements with the SEC, making it very difficult for investors to find reliable, unbiased information about those companies.

For these reasons, the SEC sees companies listed on Pink Sheets as "among the most risky investments" and advises potential investors to heavily research the companies they plan to invest in.

The appeal of the Pink Sheets in recent years has been that the issuer has relatively low "clearance" overhead, and can potentially have their stock listed on the NASDAQ OTCBB with a ".P" suffix. The NASDAQ machines were long required for every "market maker," representing an unfair monopoly which some would argue was hardly repaired with the "spin-off" of the NASDR and the recasting of the NASDAQ as a for-profit corporation, out of the not-for-profit that was Delaware-incorporated.

Buying Pink Sheets shares is supposed to be difficult; broker-dealers are enjoined to weed-out "widows and orphans" who may get an e-mail or word-of-mouth tip about a small stock. Many Pink Sheet stocks may only be registered for sale in one state, so that the only way to purchase the stock is to make a DRIP/business/unsolicited/accredited or other sophisticated form of investment. Many registered representatives do not even know how or if they can sell them.

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