Penny Stocks Comeback Via The OTCQX
Back in 2002, unscrupulous characters sprouted like mushrooms and preyed upon investors who were new to penny stocks. The operations of these illegitimate companies led to the downfall of the penny stocks market.
The Pink Sheets, where penny stocks are traded, introduced a new service called the OTCQX in 2006 that classifies companies according to the financial information they disclose. This improved transparency gives investors more access to company information and could eventually pave the way for penny stocks to rise from the ashes.
Pink Sheets sorts out penny stocks companies into these categories:
International OTCQX
This category is meant for foreign companies that issue American Depositary Receipts (ADR). Many international companies trade on US exchanges through the use of ADRs. International OTCQX requires companies to satisfy the following requirements:
* Be a non-US issuer listed on a qualified non-US stock exchange
* Have an ADR program with proprietary market maker quotes published on the Pink Sheets
* Disclose primary exchange information in English for publication in the Pink Sheets website
* Be published in the Mergent or Standard & Poor’s (S&P) manuals for Blue Sky compliance in most US states
* Assign a Principal American Liaison (PAL), which can be a US investment bank, a a US attorney, or a qualified ADR bank
OTCQX
The OTCQX, which is the highest tier, is for US startup companies seeking NYSE or NASDAQ listing, or for established US companies in search of a cost-efficient alternative to an exchange listing. OTCQX companies must meet the following criteria:
* Have their proprietary quotes listed on the Pink Sheets and/or the OTCBB
* Have active and continuing business operations, with no development-stage, blank-check, shell, or bankruptcy companies allowed
* Disclose company information, including annual audited financial statements, following the Pink OTC Markets’ Guidelines for Providing Adequate Current Information
* Be published in the Mergent or Standard & Poor’s (S&P) manuals for Blue Sky compliance in most US states
* Assign a Designated Advisor for Disclosure (DAD), which can be the company’s primary counsel or a qualified investment bank
Pink Sheets Current Information
Penny stocks companies that may be designated as Current Information providers include:
1) Companies that are registered with the SEC and are up-to-date in the filings that are required by the SEC
2) Banks, insurance companies, and non-US companies that are listed on a qualified foreign stock exchange and are up-to-date in fulfilling their primary regulator’s filing requirements
3) Non-reporting companies who have fulfilled the Pink OTC Markets’ Guidelines on reporting their current information
4) Companies with transfer agents that are registered with the SEC
Companies must post the disclosure, plus an Attorney Letter, on the Pink Sheets website within 75 days after every quarter and within 120 days after every fiscal year.
Pink Sheets Limited Information
Three types of companies may be classified under the Limited Information category:
1) Companies that have provided information on the SEC’s EDGAR system in the last half year
2) Non-SEC filers that have provided financial information posted through the OTC Disclosure and News Service. The quarterly financial reports should include their income statement, balance sheet, and total shares outstanding for a period within the last half year.
3) Companies in bankruptcy with relevant filings, including monthly financial operations reports, made with the bankruptcy court, posted through the OTC Disclosure and News Service
Pink Sheets No Information
Penny stocks companies with no information posted within the last six months, either on the SEC’s EDGAR system or through the OTC Disclosure and News Service
Caveat Emptor
Penny stocks that have been identified with regulatory suspensions, questionable promotion, unsolicited spam, disruptive corporate actions, or other matters concerning public interest.
Nir Dotan is a writer and promoter of
Penny Stocks
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