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Credibility and transparency in the Pink Sheets market?

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While stocks listed on the over-the-counter bulletin board (OTCBB) and the Pink Sheets, a privately held daily quote service (not a stock exchange), are known to be lacking in SEC filings, liquidity, and easily obtainable financial information (some have been delisted from major exchanges so brokerages actually make customers sign additional forms recognizing the added risk if they choose to trade in this niche), they actually are fully audited. In the last few years, Pink OTC Markets Inc., which owns these quotation systems, has aimed to bring extended transparency to this little known niche through the introduction of OTCQX.

The OTCQX, now a few years old and with 55 stocks listed, is a premium area of Pink Sheets -- which is littered with over 9,000 companies, most of which are penny stocks that don't trade very many shares or very often -- that provides a new level of disclosure not required outside of any major stock exchange, such as the AMEX, NYSE, or NASDAQ.

Among the 55 stocks that trade a total daily dollar volume of $20 to $30 million (as compared to roughly $40 billion on the NASDAQ!) are highly reputable companies such as Adidas AG (OTCQX: ADDYY), Air France KLM (OTCQX: AFLYY), and Benetton Group SPA (OTCQX: BNGPY) and Roche Hldg Ltd (OTCQX: RHHBY) who choose to trade their American Depository Receipts (ADRs) on the OTCQX because it's cheaper for them to avoid large IPO listing fees on major exchanges.

The benefits of ADR's are that they enable US investors to purchase shares of international companies without undertaking border costs and collect USD dividends, although the majority of investors choose to invest in more actively traded ADR's, namely on the more reputable NYSE market. Companies like AMERICA MOVIL SAB DE CV (NYSE: AMX) (average daily volume of 5 million), Nokia Corp (NYSE: NOK) (14 million), BHP BILLITON LTD (NYSE: BHP) (6 million), BP PLC (NYSE: BP) (5 million), and COMPANHIA VALE DO RIO DOCE (NYSE: RIO) (33 million).

Therefore, in order to differentiate highly regarded ADR's and other credible companies from OTCBB and Pink Sheet stocks, the OTCQX was formed. Their tiered concept divides Pink Sheets into understandable categories for the average investor, with the OTCQX being the safest transparent investment vehicle of all. "The goal is to make the market more informed, and with that, hopefully, better companies will take advantage of it and investors will be able to more easily avoid the worst ones", said Cromwell Coulson, the Chairman and CEO of Pink Sheets, in an interview last year.

Unfortunately, the 'worst ones' are also available for purchase.
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Last updated: November 08, 2009: 10:06 PM

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