Pink Sheet Stocks

Investing in Pink Sheet Stocks

Pink Sheet stocks refer to stocks that are traded on the Pink Sheets Stock Exchange (also called the “Pink Sheets” or the “Pink Quote”), an electronic quotation system. Pink sheet stocks end with the suffix .PK.

The Pink Sheets Stock Exchange is not a registered stock exchange, and is not regulated by the Securities and Exchange Commission (SEC). However, brokers who post quotes of Pink Sheet stocks must still be licensed through the National Association of Security Dealers (NASD) and they must follow NASD regulations.  

Although they can be traded on regular stock exchanges, companies that list themselves as Pink Sheet stocks usually do so because they cannot meet the requirements of other exchanges like the NYSE and NASDAQ, or because they might otherwise be unable to raise capital through stock offerings.  

Because the Pink Sheets has no listing requirements, small emerging companies are allowed to be listed. This means that even companies with no financial history can be listed, so investors should proceed with care. However, companies which issue shares as Pink Sheet stocks must still follow all Federal and State securities laws.

Pink Sheet stocks are attractive because of their low price – most can be purchased for less than $5. Sometimes this means companies with little track record, or questionable financing. Pink sheet stocks can be risky investments, particularly for new investors who have not yet learned to adjust to the rough and tumble conditions of a volatile market. 

However, the downturn in the market has changed things. Many companies have moved to the Pink Sheets because of the downturn in the economy. In fact, some surprisingly big names can be found as Pink Sheet stocks.

Marc Beauchamp, the executive director of the North American Securities Administrators Association, one of the oldest groups devoted to investor education and protection, put it this way: "It's a bit like having to move out of your house in Beverly Hills to an industrial park 20 miles east of downtown L.A.," he said. "It's not where you want to be, but at the same time it is not the end of the world."

Pink Sheet stocks offer a unique opportunity for the small investor, because many of these stocks have fallen on hard times, but still have strong fundamentals. The smart investor that takes advantage of the cheap stock prices offered by Pink Sheet stocks can find themselves with a valuable chunk of portfolio in just a few years.

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