OTC/BB and Pink Sheets

[nwwong]

Can someone explain to me what these are and how they differ from regular commodities? What kind of risks (or lack of financial protection) do I have from trading these types of stocks?

[pitz]

Basically OTCBB and Pinksheets are exchanges that allow for the trading of securites of such poor quality that major exchanges will not allow them to be listed.

For example, a major US airline recently declared Chapter 11 bankruptcy (in Canada, the equivilant would be bankruptcy under the CCAA). Their shares were de-listed from one of the major exchanges (NYSE, Nasdaq, Amex), and only trade on the pinksheets. The buyers are speculators who are estimating that there will be a token payout to shareholders (but this rarely happens -- usually shareholders are wiped out completely, as shares are cancelled and new stock is issued in the newly re-organized company).

Also, some foreign companies' shares are traded on the OTCBB/Pink Sheets. Trading such securities is allowed without filing a prospectus that conforms to SEC rules with securities regulators.

Basically speaking, unless you are a market professional, you want to avoid buying anything from the pink sheets or the OTCBB.

[forgamez]

First off, they are stocks, not commodities. Commodities are not securities.

Here is a link to a definition of OTCBB:
http://www.answers.com/topic/over-the-counter-bulletin-board-otcbb

Basically, these are stocks of very marginal companies which are usually early stage companies or lack the proper size to list on the NASDAQ national market. They are usually very thinly traded, trade at pennies per share, and are rarely tracked by institutions or sophisticated investors.

In summary, you will 99% of the time be screwed if you are relying solely on public information. A lot of OTCBB stocks are used as vehicles for pump and dump schemes by unscruplous promoters.

Pinks are even worst, as there are completely zero listing requirements to be listed on the Pinksheets.

Basically, you should probably stay away unless you are knowledgable about this industry.

[controlyar]

:arrowu: We actually agree on something. :lol:

To the OP, stay far away.
The gains can be spectacular, but I would leave these investments to the professionals.

[nwwong]

I assumed these kinds of stocks in general are risky. However, the one I am looking at in particular is a very established company that is traded on the Tokyo Stock Exchange (hint: major video game company). I use etrade which does not participate in international markets, but I am able to invest in this company through Pink Sheets. So what would you say in this type of situation? It's definitely not a pump and dump stock. But I am curious as to what difference I have by purchasing common stocks on the Tokyo stock exchange compared to if I purchase it under pink sheets.

[15-20_God]

I assumed these kinds of stocks in general are risky. However, the one I am looking at in particular is a very established company that is traded on the Tokyo Stock Exchange (hint: major video game company). I use etrade which does not participate in international markets, but I am able to invest in this company through Pink Sheets. So what would you say in this type of situation? It's definitely not a pump and dump stock. But I am curious as to what difference I have by purchasing common stocks on the Tokyo stock exchange compared to if I purchase it under pink sheets.

what you're looking at is an ADR. its essentially the same stock that trades internationally except for the currency. the difference is it costs more to place a trade in an international market, and sometimes less liquidity.

[pitz]

I assumed these kinds of stocks in general are risky. However, the one I am looking at in particular is a very established company that is traded on the Tokyo Stock Exchange (hint: major video game company). I use etrade which does not participate in international markets, but I am able to invest in this company through Pink Sheets. So what would you say in this type of situation? It's definitely not a pump and dump stock. But I am curious as to what difference I have by purchasing common stocks on the Tokyo stock exchange compared to if I purchase it under pink sheets.

In that instance, it just means that they haven't filed the paperwork with the SEC (ie: a prospectus) for a US-exchange listing. Some/many foreign companies just don't want to bother going through the expense.

ADRs/ADSs are securities where a formal prospectus, and US-depository structure has been filed/established with the SEC, and an exchange listing paid-for by the issuer.

Always do a ton of research when you buy a stock, especially if its on pinksheets/OTCBB.

[simms]

forgamez pretty much has it right on the button. pitz's explanation is general but can be miscontrued (just this part: "such poor quality that major exchanges will not allow them to be listed.") I wouldn't say poor quality but rather smaller companies that may not list on the main exchanges.

For example, take a look at FRPT.OB. A stock I highly value based in vehicle protection for defense vehicles in the Iraq war, the stock doubled when I invested at $8 in September to about $15 today. Even today it went up 3% - in the past 3 months, about 96% at its peak.

The OTCBB PK stocks are MUCH more volatile than NYSE listed stocks. I would keep an eye on FRPT because it recently refiled some disclosures which means they are gearing up to move over to the NYSE soon. There will probably be another considerable jump then as well.