Once upon a time in the
world of finance there were three kingdoms the most widely recognized was
also the most snobbish and wealthiest its subjects were affluent and known
worldwide. Its king was NYSE (New York Stock exchange) the king ruled
proudly over his subjects.
Every brokerage firm had a stock ticker to provide their customer with
trade information on NYSE listed stocks.
The second kingdom was not so well off, it had less subjects and the
inhabitants were much poorer than those ruled by NYSE, the king was named
AMEX (American Stock Exchange). They could be classified as low middle
class.
Now the third kingdom was the largest of all, it’s subjects range from
middle class to very poor, this kingdom was ruled by OTC (Over The Counter
Market). Some of the subjects of OTC were always looking to migrate to
NYSE or Amex to escape the stigma attached to being a resident of OTC.
Some of the stock that at one time traded in the Pink Sheets are well
known today such as EDS and many new IPO, as well as bank and insurance
companies, but you also had stocks trading for a fraction of a penny.
If you wanted a price on a OTC stock you would call your broker who looked
in the pink sheets to see who the market makers were, he would get on the
phone to a market maker and ask the person answering the phone for a
quote, the person answering the phone then gets the price from a
blackboard in the front of the room and give it to the broker making the
inquiry, this would take some time.
Market makers had a quote boy in the front of the trading room changing
the blackboard every time a trader yelled a different price, this markets
were good for 100 shares,
In those days it was possible to buy from one market maker at a price and
turn around and sell to another market maker at higher price because the
one market maker had no idea what the market was unless he made a phone
call. So you always found disparities in the price of a stock.
Along came a knight in
shining armor named NASDAQ the NASD Automatic Quotation System, which
allow brokers to see the price by computer, it gave the mean market
(average market) not the best price, but it was a giant step forward.
These NASDAQ machine did not provide live quotes you had to keep on
pressing the enter key in order to see the updated quote.
And eventually all the better stocks were gradually included on the NASDAQ
systems leaving the more obscure and unprofitable companies to trade on
the pink sheet. And again the NASD decided to sink the pink sheets even
further into the land of obscurity by creating the OTC Bulletin Board.
The OTC Bulletin Board started out not requiring much information from the
issuer but gradually started requesting more information and now they must
have audited financial and must be reporting.
All this left the pink as the only market in total disclosure darkness
being the only ones not requiring the issuer to disclose its financial
reports.
But on February 15, 2005 a little daylight came into the pinks, on this
day a new policy was implemented, this policy requires issuers of newly
traded securities to disclose adequate current information to the
investing public.
This is only required of those companies which have securities quoted on
an unsolicited basis on the pink sheets, and have never been listed on an
exchange or quoted on the OTCBB.
If an issuer is quoted on an unsolicited basis, this means that the NASD
has not cleared a market maker to enter a quote in the security pursuant
to SEC Rule 15c2-11. Instead, a broker is relying on an exemption to the
rule in order to display a quotation representing an unsolicited customer
order. This exception has been used to trade securities of new issuers
without any disclosure to the investing public. To address this situation,
in October 2004, Pink Sheets revised their policy for brokers entering
unsolicited quotes in a new security that has never been listed on an
exchange or quoted on the OTCBB. They now require that prior to
publication of an unsolicited quote in the Pink Sheets for such securities
the broker must ascertain that the issuer has made adequate current
information publicly available on the pink sheets website. The disclosure
policy has been a good attempt at creating transparency of the basic
information that investors trading in public markets deserve.
Pink Sheets is now extending this requirement to companies that were
previously quoted on an unsolicited basis. If the companies did not make
the required disclosure by February 15, 2005, they removed their displayed
quotation from the website.
This new policy is a big step forward for the Pink Sheets and they should
be applauded for it, but I Personally would like to see all companies
being required to make complete disclosure.
If a company is unable for whatever reason to disclose their finances and
corporate updates to the investing public then they should not be allow to
trade on any public market.
These companies operating in total darkness are the vehicles being used by
stock manipulators to scam the investing public, even though the Pink
Sheets have taken this giant step they must remove all non-disclosing
companies from the public market place.
I am not sure the pink Sheets have the authority to do so but SEC does,
and the SEC is the agency responsible for protecting the investing public.
Lets congratulate the Pink sheet for this change in policy and hope that
they will continue to upgrade their standards, as a direct result of this
policy we at Genesis Corporate Advisors are changing our policy of not
bringing any company public to the Pink sheets.
Effective immediately we will begin considering candidate for the Pink
sheets but our preference will continue to be The OTC Bulletin Board
because we want as much transparency as possible.
In order to have viable healthy market you must have willing investors
with access to current and accurate information.
