Investors often become confused when it comes to penny stocks. There are numerous definitions of exactly what defines a penny stock. The best penny stocks are generally those that trade on the major exchanges. However, sometimes, there are good penny stocks that trade on the pink sheets.
The pink sheets are fraught with danger. However, since there can be opportunity in the pink sheets, it important to understand how they are designed. Here’s a rundown of the different pink sheet levels.
The Pink Sheet Tiers:
- OTCQX Premium Listings
Firms that have provided substantial disclosure to investors are listed here. This tier is further divided into Premier for larger companies and Prime for smaller ones.
- Current Information
The next tier lower is named Current Information. This is the tier for firms that make current information available by submitting public filings to regulators. These companies still don’t have to produce audited statements or operating histories. It often shell companies or very early stage ventures that are ranked in this tier.
- Limited Information
As the name suggests, this tier is for companies that have produced information within the last six months but nothing is current. Generally firms in bankruptcy proceedings or other financial problems are designated to this tier.
- No Information
This tier is the second riskiest of all Pink Sheets. It includes companies that have submitted no information within the last six months. These can be defunct companies and those that have gone dark. These stocks are very risky. However, the ultimate in high risk is the next and final tier of the Pink Sheets.
5. Caveat Emptor
The riskiest of all Pink Sheets, Caveat Emptor or buyer beware tier is reserved for firms with a public interest problem. This means there may have been fraud, spam campaigns, or any number of other chicaneries. Spam campaigns of limited or no information tier stocks are frowned upon by the OTC Markets. In fact, these stocks can have their listings removed since OTC Markets takes internet scams very seriously without the need of SEC oversight.
Source: http://tradingtips.com/daily/penny-stocks/understanding-pink-sheets/