The Greysheet Securities
Wikipedia says it best: A grey market transaction is the trade of a commodity through distribution channels which, while legal, are unofficial, unauthorized, or unregulated by an exchange. The two main types of grey market are imported manufactured goods that would be normally unavailable or more expensive in a certain country and unissued securities that are not yet traded in official markets. Sometimes the term dark market is used to describe secretive, unregulated (though often technically legal) trading in commodity futures.
When it comes to stocks, the Grey Market category is for company stocks and securities that currently do not have a market maker in either the Pink Sheets or Over the Counter Bulletin Board. Trade in these securities is done independently and not centrally processed. In short, such exchanges occur outside the usual quoting system, may or may not require the usual SEC filings, and may involve convertible debts, bad debts, warrants, foreign and domestic issuances, and countless other specialized securities which make the market run smoothly. In fact, their placement in the Graysheet market allows the market to operate since companies need a forum for debt issuance and securities which cannot be restricted by the SEC; without such a forums, SallieMae, various foreign banks, and debt structures would fail and make the Unwinding of 2009 looks like a holiday in Vegas. So, when you trade Greysheets, be aware that they are a vital and active market structure with the benefits provided by debt and our trading of debt.
The Tools You Need
The following is a short list of skills, materials, and other stuff you need to survive the Greysheets:
- The Ability to Read a Chart -- If you cannot read a chart, then you better start learning or the Greys and iHUB will eat you alive.
- A Strong Stomach -- The Greys are truly the "Wild West" of the marketplace; replacing the Pinks as the realm of the outlaw. There is little to no solid regulation of Greys and that leads to nearly insane volatility profits. For example, sometimes you can place a bid at par and sell off over the week at 20x par value. NLAI was famous for such flips when it went Grey but was sadly delisted. But in order to trade like that, you need to keep your wits, read the chart, and plan the trade.
- Know What You're Buying -- The Greys have access to many different types of security; including debt. Ask yourself: "If I buy this, how can I take advantage of it to benefit me?" Although this may sound odd, it's a good question to ask because you have the option to purchase and convert convertible debt just like the "diluters". For example, I traded SallieMae's debt and decided to convert it out. I purchased each share for 880 USD and then converted at 1000 USD; diluting the security. Meanwhile I pocketed the difference and paid a whopping 20 USD in fees. Warrants are sound as well, but you have to read on their conversion rates and valuations since they tend to float with the market.
- Brush Up on Algebra -- The world belongs to those who understand numbers; in economic, science, and everyday life. Welcome to life! Make sure you're comfortable with percents, how to calculate a discount or premium, and how to compute fees from your broker.
- Learn on Paper -- When you first start with Greys, be sure to paper-trade using a spreadsheet until you're ready for the real deal. Trust me, this will go a long ways and will keep you from using Tucks Pads on a regular basis.
- Understand Risk -- If you decide to play in the Greys, then be warned -- it's risky. Although many Greys do file foreign forms with the SEC as to allow proper DD, GAAP and other standards may not be enforced. Also be aware that MMs do not properly trade the Greys and are able to manipulate them at will since they are self regulating and not governmentally regulated. Worse yet, your choice may go BK and vanish overnight; a huge risk. Thus remain aware that you are on your own out here but people in the forum will try to help.
- A Middle Finger -- Not kidding. I'll be blunt with you since we're adults: There are a lot of liars and dumbasses out here and they will try to pass off a Toxic PK as a Grey. If they do so intentionally, and not just by the occasional accident, then exercise your finger. Better yet, let the forum know in a single post and we'll mop it up.