Reading the stock tables is like swimming in alphabet soup. Not only does each company have a ticker symbol of one to five letters, but market listings are also peppered with an array of "behind the dot" codes that tell you something about the stock. The abbreviation .PK is one such code -- and it tells you to be extremely careful. Consider it a red flag. Or, rather, a "pink" flag.
Pink Sheets
A stock with the code .PK after the symbol -- such as "WXYZ.PK" -- is a "pink sheet" stock. These are stocks that don't trade on any major exchange like the New York Stock Exchange or the Nasdaq. Instead, they trade "over the counter" on OTC Pink, an electronic network of dealers and brokers maintained by the private OTC Markets Group. The name "pink sheet" is a holdover from the days when prices of non-listed stocks were published in a directory printed on pink paper.
No Listing Requirements
To trade on a stock exchange, a company has to meet listing requirements that are designed to ensure that the stock is backed by a legitimate, functioning business. Listing requirements vary, but they include such things as having a minimum number of shareholders, a certain amount of net income or assets worth more than a specific amount. According to the Securities and Exchange Commission, pink sheets have no listing requirements at all. A pink sheet stock could represent a functioning business, or it could be a shell company with little more than a business address and a telephone number -- if that.
Companies
The SEC says .PK stocks are for the most part "closely held, extremely small and/or thinly traded." "Closely held" means that the stock is concentrated in only a few hands. For example, a single family or the company's current management may hold a controlling interest. "Extremely small" refers to the size of the company; it may have few assets and little revenue. "Thinly traded" means there's not much of a market for the stock. You might be able to buy shares, but there's no guarantee you can sell them. Further, because they trade so lightly, prices of pink sheet shares can be more volatile and prone to large swings.
Research
Many pink sheet companies are so small that they don't have to file audited financial statements with the SEC. That can make it difficult for investors to evaluate them. However, federal regulations do require some brokers and dealers who provide stock quotes to have at least some information about the companies they're quoting. Investors thinking about buying pink sheet stocks should ask their brokers if they have -- or can get from OC Pink -- any "Rule 15c2-11" information about the companies in question.
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Writer Bio
Cam Merritt is a writer and editor specializing in business, personal finance and home design. He has contributed to USA Today, The Des Moines Register and Better Homes and Gardens"publications. Merritt has a journalism degree from Drake University and is pursuing an MBA from the University of Iowa.