A:

In the over-the-counter (OTC) market, pink sheets are daily publications with bid and ask prices of over-the-counter stocks. The modern publication is electronic, but the original pink sheets were actually printed and distributed on pink pieces of paper. The system that is responsible for compiling the OTC pink sheets is called the OTC Link LLC, which is owned and operated by OTC Markets Group Inc.

OTC Link is registered as a broker-dealer with the Securities and Exchange Commission (SEC) and is a member of the Financial Industry Regulatory Authority (FINRA). Unlike national stock exchanges, such as the Dow Jones or Nasdaq, the OTC Link does not require companies that list their stocks on the pink sheets to meet any listing requirements.

Shares listed on pink sheets tend to be very inexpensive; it is not uncommon to see some valued at less than $1 per share. Sometimes, companies that were once listed on major exchanges land on the pink sheets because they hit hard times and no longer qualified for listing. Movements in the opposite direction are also possible, when a small company listed on the OTC market grows and is eventually admitted to a major exchange.

Contemporary pink sheets are now divided into risk tiers to inform investors about the characteristics of traded companies. The Trusted Tier contains companies that the OTC market believes are credible and investor-friendly. Below this tier is the Transparent Tier which includes companies that are providing information to either the OTC Disclosure and News Service. The Distressed Tier is considered highly risky, but not as risky as the Dark/Defunct Tier or the Toxic Tier.

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