Pink OTC Markets Touts Own Shares - And A Grading System
September 21, 2009
The Pink Sheet is becoming transparent.
Pink OTC Markets, the main quoting and trading platform for over-the-counter (OTC) Pink Sheet securities, began quoting its own Class A common stock July 16.
Since Pink OTC Markets was acquired by CEO R. Cromwell Coulson in 1999, it has converted the previously telephonic market into an online trading platform.
Retail investors can trade on it directly through firms such as Fidelity and TD Ameritrade, although some brokers such as Schwab still require orders to be made by phone. Institutional investors also trade over the platform. This is supported by more than 200 market makers that also trade Nasdaq stocks.
More recently, Pink OTC Markets has created a system of symbols to grade its more than 5000 Pink Sheet companies according to their level of financial disclosures, publicly available over the Pink Sheet website. Some large non-U.S. companies' shares, known as Level 1. American Depositary Receipts, trade in the Pink Sheets, as well as shares of domestic companies which make current information available online, according to Pink OTC Markets guidelines.
The highest grade is "PS." This indicates, right now, that a firm is providing quarterly reports for the first and second quarters 2009 as well as its 2008 annual report.
James Angel, an associate professor of finance at Georgetown University, notes that the Pink Sheets have long been viewed as a market where "stocks went to die."
Angel adds, however, that there are numerous legitimate companies that need access to a reasonable securities trading system, but due to their size or other reasons choose not to register with the Securities and Exchange Commission and submit to the exchanges' listing requirements.
With its grading system, Angel says, "Pink OTC is trying to separate the good stuff from the trash."
The market has provided a venue for numerous large non-U.S. companies, such as Nestle, Roche and Gazprom, to maintain a U.S. stock presence without going to SEC registration, which can cost millions of dollars. The same rational applies to smaller U.S. companies, some of which may have been listed on another exchange and have chosen to delist.
