» Since most stock scams involve penny stocks, it is worthwhile to know where these stocks trade and where they do not trade. There is no definition per se of a penny stock. To some it is any stock whose price is under one dollar. Others feel it is any stock that trades under five dollars where it trades on the Over-the-Counter Bulletin Board or in the pink sheets.

National Market System

» The Over-the-Counter market is comprised of three parts. One part is the National Market System (NMS) of the NASDAQ (National Association of Securities Dealers Automated Quotation) System, which does not include any penny stocks. This Market Systems plays host to stocks like Dell and Microsoft.

Over-The-Counter Bulletin Board (OTCBB)

» The second part is the non-NMS NASDAQ securities, including some penny stocks. The OTCBB is an electronic quotation system that displays quotes information for many OTC securities that are not listed on the Nasdaq Stock Market or a national securities exchange. Brokers who subscribe to the system can use the OTCBB to look up prices or enter quotes for OTC securities. Be aware that the OTCBB is not part of the Nasdaq Stock Market. Many scam swindlers falsely represent that an OTCBB company is a Nasdaq company when it fact it isn’t. This is important since OTCBB companies are not subject to the same stringent listing or ongoing filing requirements that NASAQ companies are subjected to. As well you will not be able to look in the newspaper to track the stock prices of these OTCBB companies. You will need to rely on your broker for all price information.

Pink Sheets

» The third part is the National Quotation Bureau's (NQB) service, commonly referred to as the "pink sheets." These stocks are quoted in a daily circular known as the "pink sheets," so named for the color of the paper on which they are printed. To obtain the price of these stocks it is necessary to for broker-dealers to call the trading desks of “market makers."

Market Makers

» OTC trades are carried out within one, or between, trading departments of brokerage firms. These brokerages are called "market makers" when they carry an inventory of the stock and quote the prices at which they are willing to buy and sell securities. The market maker is a broker-dealer who is prepared to buy or sell 100 shares of the stocks in which it makes a market. When a transaction is proposed, the market maker will give a price at which it would be willing to buy or sell. Note that the market maker's price applies only to the first 100 shares. The greater number of market makers for a particular stock, the more likely will there be a more true market price for the stock. The names of the market makers of securities traded in the pink sheets are listed in the pink sheets.

» We advise our readers to stay away from the OTC market because of the limited information that is available to investors and because the OTC has been the host of tremendous number of fraud and stock manipulation over the years. Most companies in the pink sheets or OTCBB are not there because of choice. Most cannot meet the listing requirements of the NASDAQ market or other exchanges.

» If a promoter indicates to you that the stock he or she is promoting is a NASDAQ company, visit the NASDAQ exchange and conduct a search to determine whether the promoter is misrepresenting the company he or she is promoting.

» If you encounter any impropriety, please file a complaint with us to warn others and the SEC.