Over-the-counter stock quotes, called “pink sheets” because of the color of the paper they used to be printed on, are today published electronically by OTC Markets Group Inc. This private company is not an authorized broker-dealer and is not registered with the U.S. Securities and Exchange Commission. Stocks sold over the counter are not listed on any exchange and are not required to meet any minimum requirements, unlike companies trading stocks on an exchange. Although these investments can be risky, with a little research and preparation, you might be able to successfully buy and sell pink sheet stocks.
Research the company in which you are planning to invest. Companies traded on the OTC exchange are often very small and closely held. It can be difficult to find much information on them, because they are not required to file audited financial statements with the SEC or other regulatory authorities. The OTC Markets website (see Resources section) divides companies trading on the pink sheets into eight tiers according to criteria that include how much information is available about them. Some companies with no information are listed in the lowest tier, “caveat emptor.” You should be very cautious in purchasing stocks in this tier, for reasons that range from spam campaigns to investigation for fraudulent activities. You might able to request the company’s annual report or find it online. Also, the SEC or the securities regulator in your state might provide useful information on the company.Step 2
Consult an investment adviser. Rule 15c2-11 of the 1934 Securities Act requires some broker-dealers to provide information on the issuers of OTC stock before you invest. Your broker also might be able to direct you to resources that can help you investigate the company. You will need to open a brokerage account, if you don’t already have one, before you can buy and sell stocks on the OTC or any other exchange.Step 3
Buy the stock you’re interested in after your research is complete. Your broker will review the “bid” and “ask” prices of the stock and place your order with the exchange. Check with your broker a week after placing the order to confirm that the trade has been completed. Continue to follow the progress of the stock’s price after you buy. Because some OTC stocks trade at an extremely low volume, you might have some difficulty finding a buyer for them. Additionally, because some OTC stocks have so few shares outstanding, purchase and sale of small amounts of stock can lead to large fluctuations in the price of the stock.
- OTC stocks can be high-risk investments, and some might even be sold fraudulently. Before buying shares in them, make sure you are comfortable with the level of risk.
Ben Bontekoe is a published writer with an extensive background in personal finance, banking, career counseling and education. A graduate of Calvin College, he has worked for major financial institutions including Bank of America and Citibank.