Pink-sheet stocks get their name from the color of the pages of a daily publication once used to distribute prices and the names of market makers in this nether region of the stock market. A group of investors, led by R. Cromwell Coulson, now president and chief executive of Pink Sheets, in 1997 bought the company that published the pink sheets. Coulson's proposal for a premium tier of pink-sheet companies -- to be called OTCQX -- is part of an ongoing effort to bring more respectability to the pinks.
It's not a bad idea. Despite the bad reputation, pink sheets can offer some rewarding investments. You can find some great value plays, like economically distressed companies that are trying to work things out after they have fallen off the exchanges, Coulson says. He cites HealthSouth (HLSH, news, msgs), a rehabilitation and medical services chain that left the Nasdaq in 2003 when an accounting scandal nearly drove it into bankruptcy. In its early days on the pinks, HealthSouth stock traded for pennies. But the stock rebounded and recently sold for $4.90, a gain of more than 2,000%.
Here's what companies will need to do to join the elite:
Have a real operating business.
Provide financials that are audited according to standards known as generally accepted accounting principles.
File quarterly and annual financial reports with Pink Sheets LLC, which will make them available to investors, and give updates on material events, just as listed companies report these filings to the Securities and Exchange Commission.
Have at least 100 shareholders who each hold at least 100 shares each.
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