Often thought of as the wild west of the market, officials with Pink Sheets announced that this month the exchange would begin enacting safeguards aimed at making the highly-speculative market a little safer to trade in.The exchange said that May would mark the beginning of a process of categorizing companies listed on the Pink Sheets, based on their willingness to provide information to the marketplace. At first companies will be assigned a proposed category, and the information will show up on their company information page on http://www.pinksheets.com/.
Starting Aug. 1, however, those categories will become final, and a small graphic icon will be placed next to the company’s symbol – telling a potential investor quickly whether the company is a good bet or not.
Companies can apply to be included in the OTCQX premium tiers, which will indicate their willingness to provide credible information to investors and potential investors. The highest level of OTCQX requires companies to show that they’ve met and have agreed to continue to meet the requirements of the Nasdaq Capital Market and have nominated a Designated Advisor for Disclosure (DAD). The PrimeQX tier companies must have an ongoing business operation – which eliminates shell companies from contention right away – and have an initial bid price of at least 25 cents. They must also nominate a DAD.
Since foreign companies frequently trade on the Pink Sheets, a separate category was set up for International OTCQX Premium Tiers. The International PremierQX requires companies to meet the financial requirements of the New York Stock Exchange’s worldwide listing standards. The company must also be listed in a qualified international stock exchange, provide home country disclosure to U.S. investors in English, and must also nominate a Principle American Liaison (PAL).
International PrimeQX requires companies to be listed on a qualified international stock exchange, provide home country disclosure and nominate a PAL.
Outside of the upper echelon distinctions, Pink Sheets will also begin categorizing companies by their willingness to provide accurate information. To earn the pink checkmark icon that indicates the company has provided current information, the company must be registered with the SEC and be current in all electronic filings posted with the SEC. If not registered with the SEC, the company must meet Pink Sheets requirements for providing adequate current information, which is confirmed by a quarterly letter from an attorney. Information is considered current if it’s posted within 120 days of the fiscal year ended for annual reports, and within 60 days of the quarter ended for quarterly reports.
Banks and financial institutions listed on Pink Sheets will be placed in the Current Information category if they provide Pink Sheets the same information they supply their regulating agency, and in a timely manner.
Companies that are lax in posting disclosures with the SEC and Pink Sheets, but have posted some within the last six months will be tagged with the Limited Information category, which will put a yield sign icon next to their tickers. Companies must have, at minimum, quarterly financial reports that are prepared under Generally Accepted Accounting Practices.
Companies with no information will see a stop sign affixed next to their tickers. Companies that have raised concerns in the investment community will display a skull and crossbones, and be filed in the Caveat Emptor/Buyer Beware category. Spam campaigns and other concerns involving the company can land it in the latter category, and during a spam campaign, companies that haven’t qualified for the Current Information Distinction will have their company’s quotes blocked on the Web site.
At least one company has opted to take the distinctions seriously, and take steps to make sure its meeting Pink Sheets requirements. San Diego-based Green Star Products (Pink Sheets: GSPI) announced it had retained an attorney whose sole objective is making sure the company is meeting the exchange’s disclosure guidelines.
“The Company’s goal is to meet and maintain the requirements to receive a ‘Current Information’ classification under Pink Sheets’ new Disclosure Categorization system,” Green Star said in a statement. “GSPI has made all arrangements necessary to receive the most favorable category possible under the new Pink Sheets new Disclosure Categorization system.”
But the policing doesn’t end there. In March, the National Association of Securities Dealers saw its authority expanded to include all Pink Sheets securities and grey market securities. The NASD can now halt trading on virtually any OTC Equity security, whereas prior to the change, it could only halt securities on the OTC Bulletin Board.
The new rule – Rule 6660 – authorizes the NASD to halt a stock for up to 10 business days. If a halt is longer than four business days, the company will not automatically see its stock resume quotation, but will have to comply with SEC and NASD rules that require approval of a Form 211 filed by a market maker before the stock. The market maker, when filing Form 211, says that they have reviewed certain information about the company, and they have a reasonable belief that the company’s information is accurate and reliable.
An additional rule, IM-6660-1, would allow the NASD to halt trading and quotations on the company if “extraordinary events” occur that could “have a material effect on the market for the OTC equity security and have the potential to cause major disruption to the marketplace,” the NASD revealed.
However, “due to the general nature of trading and quotation in the OTC equity market, and the fact that NASD lacks a direct contractual relationship with OTC equity issuers, the NASD does not favor imposing a trading halt and thus expects to exercise this authority in very limited circumstances,” the NASD said.
