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Laura Anthony, Attorney
Legal & Compliance, LLC
330 Clematis Street, Ste. 217
West Palm Beach, FL 33401

Toll Free: 1.800.341.2684
Phone: 561.514.0936
Fax: 561.514.0832


LawCast
 

Pink Sheet Companies

Pink Sheet Companies

Pink Sheet Companies or "Pinks" are companies whose stock is quoted on the NASDAQ over the counter market PinkSheets. Neither FINRA nor the SEC requires Pink Sheet companies to maintain current reporting status or undertake expensive annual audits although audits are recommended. Also, there are no listing requirements for the Pink Sheets such as amount of capital; number of shareholders; market cap; share price; or amount of assets.

A Pink Sheet Company is regulated by state and federal securities laws, but since the over the counter market is not an “exchange” (for example, the American Stock Exchange (AMEX) and the New York Stock Exchange (NYSE)) they are not subject to separate exchange regulations. Requirements regarding the number of board members, whether such board members are independent, annual shareholder meetings, proxy notices etc. originate from state law and federal securities laws for companies listed on an exchange and are not required by NASDAQ, FINRA or the Securities Exchange Commission (SEC) for companies trading on the over the counter market. Pink Sheets are subject to fewer regulations and are governed by fewer regulatory bodies than entities which are subject to the reporting requirements of the Exchange Act and/or trade on an Exchange.

Non-Reporting and Reporting Pink Sheet Companies

Pink Sheet Companies exist in various forms; including reporting and non-reporting as well as trading and non-trading. Pink Sheet Company securities are generally priced lower than Bulletin Board Companies and are usually subject to the limitations of the Penny Stock Rules for securities priced below $5.00, promulgated under the Securities Exchange Act of 1934 including:

  • Broker-dealers who recommend these stocks must establish a special written suitability determination for the purchaser.
  • The purchaser's written agreement to the transaction must be received prior to the sale.
  • The purchaser must be provided with risk disclosure documents that identify certain risks associated with investing in penny stocks and describe the market for penny stocks as well as a purchaser's legal remedies.
  • Broker-dealers who recommend these stocks must obtain a signed and dated acknowledgment from the purchaser demonstrating that the purchaser has actually received the required risk disclosure document before a transaction can be completed.

The term "Pink Sheets" also refers to a centralized quotation service that collects and publishes market maker quotes for OTC securities in real time. Their website PinkSheets.com provides price quotes, financial news and information about OTC companies to investors. Quotes are provided with a fifteen-minute delay.

The Pink Sheets is not a stock exchange or a regulated entity. Price quotations are provided by OTC market makers and company information is provided by the OTC companies. However, pinksheets.com does impose some self regulation on the companies whose securities are quoted on its website.

Pinksheets.com breaks companies down into eight categories based on the level of disclosure and information provided by the Company to investors. The following is a brief description of each category:

  1. OTCQX – this is the highest level of PinkSheets tiers; companies must meet all the reporting requirements of the Exchange Act of 1934 to be listed on the OTCQX
  2. PinkQuote/OTCBB – companies that are dually quoted on the PinkSheets and bulletin board; these companies are subject to the reporting requirements of the Exchange Act of 1934
  3. OTCBB only – these companies are only quoted on the bulletin board and accordingly are not really Pink Sheet companies at all;
  4. PinkSheets Current Information – although these companies are not subject to the reporting requirements of the Exchange Act of 1934, they do voluntarily submit quarterly and annual reports to the PinkSheets news service and maintain adequate current information; The Current Information category is based on the level of disclosure and is not a designation of quality or investment risk.
  5. PinkSheets Limited Information - Designed for companies with financial reporting problems, economic distress, or in bankruptcy to make the limited information they have publicly available. The Limited Information category also includes companies that may not be troubled, but are unwilling to meet Pink Sheets' Guidelines for Providing Adequate Current Information. Companies in this category have limited financial information not older than six months available on the Pink Sheets News Service or have made a filing on the SEC's EDGAR system in the previous six months.
  6. PinkSheets No Information – companies that do not provide information via the PinkSheets news service or whose information is older than 6 months; PinkSheets warns investors that investment in these companies is highly risky
  7. Grey Market - There are no market makers in this security. It is not listed, traded or quoted on any stock exchange, the OTCBB or the Pink Sheets.
  8. Caveat Emptor - Buyer Beware. There is a public interest concern associated with the company, which may include a spam campaign, questionable stock promotion, known investigation of fraudulent activity committed by the company or insiders, regulatory suspensions, or disruptive corporate actions. During the time it is labeled Caveat Emptor, any stock that is not in the Current Information category will also have its quotes blocked on PinkSheets.com.

    Contact us today. Inquiries of a technical nature are always encouraged.


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