- Over The Counter Bulletin Board Stock (OTCBB Stock)
OTCBB stock are traded “over the counter” which refers to stocks not traded on the major exchanges such as the NYSE and the AMEX. Stocks traded over the counter are smaller companies that are unable to make the listing requirements of the major exchanges. They are also referred to as penny stocks, pink sheets and the grey sheets. On the OTCBB you can find companies trying to perform well enough to become listed on the major exchanges. You will aslo find companies that have a bad history and have been de-listed from the major exchanges and wind up trading over the counter. When trading any OTCBB stock you must be careful. Besides the obvious issues with companies not meeting listing requirements or being very small. There is a large amount of stock manipulation that occurs. Yearly there are many arrest for those who run “Pump and Dump” schemes.
- Penny Stocks on Nasdaq
Nasdaq is a dealer network that operates as a stock exchange. While OTCBB stocks traded on the dealer networks, they do not trade on the Nasdaq. Penny stocks are considered OTCBB and trade over the counter some of these companies strive to become listed on exchanges such as Nasdaq. Penny stock are required to file with the SEC. You can buy penny stocks from your online broker, Etrade, TD ameritrade or scottrade to name a few. Each of these brokers have different criteria for buying OTCBB stocks. None of these brokers will allow you to buy penny stocks on margin.
- Pink Sheets Stock
Pink sheets are also called Pink quote and are traded over the counter. Pink sheets are considered a tier lower than penny stocks. Although they are both traded on the OTCBB, penny stocks are required to file with the SEC while the pink sheets are not. Many pink sheet companies strive to become listed on the OTCBB as penny stocks. Some pink sheet companies file with the SEC even though they are not required to file.
- OTCBB Stock Listing Requirements
Technically the OTCBB doesn’t have any listing requirements. It is not a stock exchange or stock market therefore it has minimal requirements that must be met to be listed or remain listed. If a company does not meet the minimum requirements, they are traded on the pink sheets. To be listed on the OTCBB companies must file with the SEC and remain current in their filings. When a company doesn’t remain current, they become delinquent. Delinquent companies trading over the counter while have an “E” added to the end of their symbol. These companies have a short window to become current again and have the “E” removed. If they fail to meet this requirement they will be removed from the OTCBB.
- OTCBB Stock Fraud
“Pump and Dump” schemes are frequently committed on the OTCBB exchange. This scheme involves buying low priced over the counter stocks, running up the price of the stock without reason and then selling those shares to unsuspecting investors. There are many methods used to drive up the price of an OTCBB stock. The most common method involves forums. There are many penny stock forums where trader gather to discuss stocks. OTCBB stocks are priced anywhere from 5.00 to under a penny, with some trading as low as .0001, these stocks can run up hundreds to thousands of percent in a day. These large runs are not uncommon and the forums are full of traders waiting for a stock to run. The criminal element, then buys a large amount of shares at a low price and begins to push the stock through the forums driving up its price. At time companies are also involved and pay for “promotions” of the their companies so they can sell their shares at a higher price.
Not only does a micro cap trader have to worry about companies profiling their stock for gain, the forum hot stock picks that push up the price, but they also have to worry about insider fraud. The best way to trade the OTCBB stock is with knowledge, taking the time to read the SEC filings, calling the transfer agent to learn about the share structure, and contacting the companies investor relations department. Even when you complete all these steps and feel comfortable about the company, you watch the chart and buy at what you feel is a good price, you can still be the victim of fraud. Many times insiders garner control of the companies shares, they issue press releases touting how great their company is and what a great future they have. The company shows a solid share structure but behind the scenes, the insiders are diluting shares while planning on filing later or filing falsely. Then as the price skyrockets they “dump” the shares into the market. No one understands what happened but all the investors are left with nothing. This happens very often when trading OTCBB stock. If the fraudsters are not caught they will file for a reverse split, removing most or all of the shares they just dumped from the market while creating a nice looking share structure for the company. Then they file for a name and symbol change while planning to commit fraud again. These are no small time crimes, some of these scams rake in millions of dollars.
OTCBB Stocks consist of penny stocks, the grey sheets, the pink sheets, micro cap stocks, nano cap stocks, small caps etc… you can make money trading these over the counter stocks you just need to be careful and do your homework!