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SANTA MARIA, CA (OTCBB NEWS NETWORK), June 21, 2002—The OTCBB total volume has dried up in recent days. Only weeks ago it was approaching a billion shares on good days. It is currently down to around 300 million shares daily. In fact, the other OTC “exchange” called the Pink Sheets now has volume that rivals that of the OTCBB. What is going on? Is it just the summer doldrums, the same market woes that drive the bigger exchanges? Perhaps. Certainly that contributes to it. But it could be something else. Could the OTCBB be starting to shut itself down because of the new upcoming BBX exchange? Experts believe that roughly 2000 companies will not be able to qualify for the BBX listing standards. What will happen to the 2000 companies? They will fall to that other OTC venue called the Pink Sheets. Here is a primer on the Pink Sheets, as we realize there are lots of investors who know nothing about it.
Like the OTCBB the Pink Sheets is technically not an exchange, but rather an electronic bulletin board system for market makers to quote stock prices. The Pink Sheets got it's name from the old Pink colored pieces of paper that it used to use to quote stock prices before it became electronic in 2000. In fact, the Pink Sheets dates back almost 100 years, as it provided a venue for OTC stock prices long before there was a NASDAQ. For those of you new to trading, the word “OTC,” means over-the-counter (a word used to describe any stock that is not listed on a major stock exchange). In fact, even fully listed NASDAQ companies are technically OTC. So OTCBB and Pink Sheet listed companies are both OTC.
The OTCBB, owned and operated by NASDAQ, created in the early 1990s was in the right place at the right time. As the dotcom frenzy exploded by the late 1990s the OTCBB was the only online venue available for investors for stock quotes of small, speculative companies. The Pink Sheets, owned and operated by a company called Pink Sheets, LLC was never able to participate in the middle 1990's online trading frenzy because it was still not electronic and quotes were not available over the Internet. What good is a printed venue in an electronic age where investors need real time, instant quotes to gain the online advantage? By the year 2000, the Pink Sheets finally developed an electronic system for quoting in order to meet this demand. Pink Sheets stocks are purchased and sold the same way that OTCBB stocks are – through your broker. There is essentially no difference between the two systems. In fact, a market maker recently told us he feels the Pink Sheets is a better system because it dynamically updates, meaning the maker does not have to hit “refresh” in order to get the updated information.
Unfortunately, the Pink Sheets receives a bad PR wrap today because of their history. They should have changed the name of the system to something like Pink Sheets Over-the-Counter Bulletin Board (PS-OTCBB) or something similar. This may have helped prevent the perception problem, especially since the system is truly an OTC electronic bulletin board just like the OTCBB. Why did the Pink Sheets allow investors to believe that the Pink Sheets is somehow inferior to the OTCBB? The reality is this could not be further from the truth.
There are some differences in the companies perhaps, but not the trading systems. The image of the Pink Sheets has to do mostly with appearances rather than reality. One of the problems of the Pink Sheets is that financial websites do not yet publish the bid and ask price of the stock. They often quote the last price, using the words “other OTC” or “other.” Big deal. The Pink Sheets has its own quote system, complete with the bid and ask price. In addition, real time quotes, complete with bid and ask prices are currently available in many real time quote services like Mytrack.com. A source at the Pink Sheets even told us that in the 3rd or 4th quarter Pink Sheet bid and ask prices will be made available to the major financial portals like Yahoo, Quicken.com, etc. So it seems like the Pink Sheets is taking steps so that it is up and ready to fill in the gap left by the OTCBB.
So now that we have established that the OTCBB and Pink Sheets are essentially the same type of trading systems there are a few things to be aware of before you jump right in and start trading Pink Sheet stocks. There are no reporting requirements for Pink Sheet companies (up until 2 years ago the OTCBB had no reporting requirements). This means that the companies listed on the Pink Sheets are not required to post SEC filings. Sure there are lots of non-reporting companies. Some of these are foreign issuers who are not required to report US financials, like Russian conglomerate LukOil Oil Corp. (LUKOY), BAE systems (BAESY), formerly British Aerospace, Swiss giant Nestle SA (NSRGY), Wal Mart De Mexico SA (WMMVY), Swiss financial giant Zurich Financial (ZFSVY is not quoted electronically) and many others. Many Pink Sheet companies are also fully reporting. This is significant; as it means the fully reporting companies are essentially the Pink Sheet equivalent of current OTCBB stocks.
Hopefully that clears the record about the Pink Sheets and the stocks quoted there. So don’t avoid a stock just because it is listed on the Pink Sheets. Approach the stocks the same way you do any OTCBB stock, do your research and due diligence. Establish your investing criteria for the companies and then decide.
So with the OTCBB being dissolved where does this leave the Pink Sheets? The Pink Sheets will soon become an even more important venue than it is today. It has to step up to the plate and we believe it will
AI
