The OTC Bulletin Board is a network of many
market makers, with each reporting current bids, offers, and completed trades
to a centralized computer.
Pink
sheet is a daily publication accumulated by the National Quotation Bureau with
bid and asks prices of over-the-counter (OTC) stocks, including the market makers
who trade them. The Pink sheets got their name because they were actually
printed on Pink paper. The Pink sheets were initiated as a daily quote service
provided by the National quotation bureau.
Stocks
of small companies are generally traded on both OTCBB and Pink sheets. The
stocks on both the OTCBB and Pink sheet are traded over the counter, but there
is a significant difference between both the markets.
The
companies usually suffering from two aspects are traded on OTCBB. The first
aspect is that the company is delisted from the major stock exchanges. The
company may be going through harsh times and fails to meet the listing
requirement of the NASDAQ or NYSE then it will be delisted. It can also happen
when the company is undergoing financial crisis. The other type of companies is
small companies failing to comply with the listing requirements of the big
stock exchanges. These two types of companies, however, need to meet some
listing requirements of SEC filing and minimum requirements set by the OTCBB.
On the
other hand, contrary to the OTCBB, companies having over the counter stocks
traded through Pink sheet market do not need to fulfill any minimum
requirements. Most of the stocks offered by these companies come under the
criteria of the penny stocks.
Unlike
OTCBB, companies on the pink sheets are hard to analyze because it is gruesome
to get accurate information about them.
One
major difference between Pink sheets and OTCBB is that, Pink sheet is owned by
Pink sheet LLC, a private company, whereas OTCBB is owned by FINRA, a self
regulatory organization. However regulation and operation, of both, do not go
through any major changes because of the change in ownership. The regulation
over both the markets is done by FINRA’s regulation of conduct of
brokers-dealers that submit quotes in each facility.
The
Pink link service of Pink sheets in particular provides participating
broker-dealers with the better method to achieve compliance with their best
execution obligation contrary to OTCBB system.
The
reason why OTCBB cannot accept quotes in securities that are not part of a
class of securities registered under Section 12(g) of the exchange act is that
FINRA, which owns the OTCBB, decided in 1999 that it was not suitable for the
OTCBB to do so. As a result, Pink Sheets accepts quotes in securities that are
part of a class of registered securities, as well as in securities that are not
registered while the OTCBB will only accept quotes in securities that are part
of a class of registered securities.
One of
the major benefits to OTCBB over the Pinks is that if one sees a continuing
quotation showing on an OTCBB stock that means it is currently undergoing
regulatory filings—a necessary element to remain listed. If the company is late
in filing, an ‘E’ is fixed to the quote symbol until the company completes its
regulatory filings. Failing to do so within the 30-60 day grace period, the
security will be removed.
One
particular trend, which is proving to be beneficial for growing listing on Pink
sheets, is the prohibitive cost and regulation associated with the OTCBB or any
other exchange. More and more companies are inclined towards Pink sheets in
their initial stages or formative stage. The list of ever increasing regulatory
requirements is just too troublesome for smaller companies.
It is fairly possible that most of the
investors never had a chance to hear or deal on the pink sheet world a few years
ago, but with the advent of the Internet, its visibility has improved to a
point that issues and volumes have increased exponentially. While this may be a
supplement to the ‘legitimacy’ of the Pink Sheets, investors need to be very
careful because the Pink sheet companies do not require any regulatory filings
and usually do not open their financial status, in front of the public, unlike
OTCBB.
Links Used:
http://www.investopedia.com/ask/answers/201.asp#axzz2Hyus8GcA
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