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The New Pink Sheet Categories Will Help Clean Up The OTC Market

Aug 17, 2007
The new Pink Sheets Trading Categories are a tool to help investors gather the information they need on publicly traded companies quoted on the Pink Sheets. Since Pink Sheets is a trading venue that is driven by OTC market trading demand, it is hoped that categorizing securities by their level of disclosure will greatly enhance the capital formation process, and help prevent Micro cap fraud.

The following Pink Sheets categories are a tool to help investors make better informed, educated decisions, and are meant to improve transparency and provide adequate public disclosure in a credible and timely manner. Starting in May of 2007, every security that Pink Sheet quotes will be put into one of the categories described below.

Emerging Equities List:

The Emerging Equities List is appropriate for issuers that are in development stage and are actively raising capital or companies that wish to distinguish themselves as issuers with reputable managements and audited disclosure.

To qualify for this category, companies must be SEC reporting and current in their SEC requirements and meet the Pink Sheets Guidelines for current information, including GAAP audited financial reports. Interim reports must be posted within 45 days and annual reports must be posted within 90 days after each fiscal year ends. The company must also provide detailed information on their financial officers annually to Pink Sheets.

SEC Current

The SEC Current category is for companies that are SEC registered and current in their SEC financial reporting requirements. Companies must post their disclosure by the SEC's EDGAR system, be current in their filings, file quarterly reports within 45 days and annual reports within 90 days. This level of listing requires a quarterly letter from the attorney vouching for the completeness of their quarterly reports and disclosures.

Adequate Current Information

Non-SEC-reporting companies that are quoted on Pink Sheets that do not have GAAP audits are listed in this category. Pink Sheets confirms that they have met the requirements for Pink Sheets Guidelines for providing adequate current information, which means they must post a quarterly letter from an attorney regarding the completeness and adequacy of their company's disclosure. They must support a management certified annual audit as well.

Adequate Current Information for Banks and International Issuers

Companies in this category are non-SEC-reporting federal or state regulated banks, insurance companies and non-U.S. companies listed on an international stock exchange. For banks and insurance companies, they must post to Pink Sheets the same information they provide to their regulators. Foreign issuers must post the same disclosures required in their home country exchange. Disclosures in a non-U.S. currency must be clearly labeled, in English and posted in a timely manner.

Limited Information Available

Economically distressed or bankrupt companies that get quoted on Pink Sheets that have posted some information in the last six months, either through the SEC or on the OTCIQ system, but whose disclosure is not current or complete. This category is also used for companies that have not yet met the requirements for the Adequate Current Information listing.

No Information:

Companies in this category have not posted any information in over six months through the venues described above. In many cases, this is because the company is in financial distress or otherwise on shaky ground.

Public Interest Concern:

For stocks with unsolicited spam, questionable promotion or other public interest concerns will be listed in this category. Companies in this category are on the verge of having their stock symbols blocked by the Pink Sheets.

Only time will tell, as Micro cap fraudsters have continually found ways to get around the rules, but this author believes this move by the Pink Sheets should go a long way towards cleaning up the quality of the OTC companies quoted by the Pink Sheets.

(c)2006 Stan Medley
About the Author
Stan Medley is a consultant that has been assisting companies to go public for over 18 years. Stan is a consultant to Artfield Investments which provides full services for companies that want to go public. Additional information on this topic is at http://www.artfieldinvestments.com.
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