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pink sheet stocks | |||||
Pink sheet stocks:
SUMMARY
1. Introduction and definition
2. Nature of Pink Sheets and risks
3. Buyers, sellers and difficulties
4. Reasons for listing in the Pink Sheets
5. Falling of stock prices
6. Starting small
7. By choice
8. Foreign companies
9. Investors by accident
10. Gamblers instinct
11. Conclusion
Introduction and definition:
Nature of pink sheets and risks:
Pink Sheets LLC is not a stock exchange. Companies listed in the Pink Sheets are mostly very small and also very closely held public companies for which not many shares are available for the public at large. These companies could also be penny stock companies or they could be in bankruptcy. For these reasons these companies are very thinly traded. They do not fulfill the minimum listing requirements for trading on a National Securities Exchange like the New York Stock Exchange or NASDAQ. Many of the companies listed in the Pink Sheets LLC do not file periodic reports or audited financial statements with the Securities Exchange Commission (SEC). Therefore it is extremely difficult for to find reliable and authentic reports about companies listed in the Pink Sheets LLC. No wonder then that according to the SEC, investment in companies listed in Pink Sheets is extremely risky. Prospective investors are advised to research heavily about any company listed in the Pink Sheets before investing in them. More than anything, it is the lack of information which is the most alarming aspect of trading in Pink Sheet Stocks.
Buyers sellers and difficulties:
Reasons for listing in the pink sheets: There are many different reasons for a company to be listed in the Pink Sheets.
NON-FULFILLMENT OF LISTING CRITERIA: Most of the companies listed in Pink Sheets can not fulfill the minimum listing criteria for getting listed on NSE exchanges. Hence they have to opt for Pink Sheets listing.
FALLING OF STOCK PRICES: Few companies originally listed in NASDAQ found themselves on Pink Sheets, when their stocks tumbled and fell below a penny in market. Many of these were technology companies or internet companies. In fact Pink Sheets is the home to nearly all Penny Stock companies, although all companies listed in the Pink Sheets are not Penny Stock companies.
STARTING SMALL: Interestingly, some companies prefer to start it small by listing themselves on Pink Sheets and then gradually moving on to bigger exchanges. So, for these companies it is a nice way to test their strength before they move up to higher goals.
BY CHOICE: Some big companies like Deutsche Bank prefer to be listed on Pink Sheets.
FOREIGN COMPANIES: Some large and small foreign companies trading as American Depository Receipts are also listed in the Pink Sheets. The financial statements of many of these non-US companies do not conform to American accounting standards which makes them ineligible to be listed on NSE exchange.
INVESTORS BY ACCIDENT: Many of the investors of Pink Sheet Stocks did not come there by their own choice but by accident. They were owners of stocks of companies which were listed on NASDAQ, e.g. technology companies or internet companies. As the prices of the shares of these companies tumbled to a penny or even less, they found themselves on Pink Sheets after getting de-listed from NASDAQ. Consequently the stock holders of these companies became Pink Sheets stock holders by default.
GAMBLERS INSTINCT: Many others buy Pink Sheet stocks out of a gamblers instinct. Buying Pink Sheet Stocks for a fraction of a penny per share, they hope to make a small profit when the price rises to a penny or more. And if the company goes bankrupt, they hope to get a share of the liquidation proceeds, like the amount realized from sale of assets or domain names.
CONCLUSION: Pink sheets are being increasingly overrun by manipulators, although not all low priced stocks listed therein are illegitimate. Lack of regulation coupled with lack of information poses serious risks to any investor in Pink Sheet stocks.
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