Changes in stock quoting throws system into confusion

On the Money
From the  April 1, 2011 print edition

A recent change in how some over-the-counter (OTC) stocks are quoted caused lots of distress for their investors — who wondered if their stocks had disappeared, stopped trading, been delisted or otherwise had vanished from the trading platforms.

The situation started in September 2009, when FINRA (Financial Industry Regulatory Authority), which owns and operates the OTC Bulletin Board, announced it wished to sell it. But FINRA hasn’t been able to sell the OTCBB, and many nervous broker dealers left that exchange starting in January.

That’s left many companies with no representation on the OTCBB, resulting in them being pushed down to the less-prestigious Pink Sheets.

The OTCBB has been identified with companies that fully report to the Securities and Exchange Commission, and the Pink Sheets with companies that don’t report.

Until recently, most small, fully reporting issuers believed they were being listed exclusively on OTCBB, owned by FINRA. However, to their shock, many learned their shares simultaneously were trading on the Pink Sheets, which are owned and controlled by OTC Markets Group Inc. (www.otcmarkets.com). But they also recognized this was a positive development, because they still had a place to trade.

Since Jan. 1, more than 850 publicly traded companies moved from being dually quoted (OTCBB and Pink Sheets) to being quoted exclusively on the Pink Sheets. Only 19 issuers remain exclusively quoted on the OTCBB.

Adding to the confusion, third-party data providers — such as Yahoo Finance, Reuters and MSNmoney.com — haven’t connected the data between the OTCBB and Pink Sheets. That’s resulted in investors and shareholders not being able to find company listings and trading activity.

It’s also left the impression that companies have become noncompliant with the SEC — and many of them have issued press releases to clear that up.

The third-party data providers are scrambling to improve their information-gathering systems with both OTCBB and the Pink Sheets. But meanwhile, many companies are listed in a disconnected manner.

For example, Yahoo Finance lists Lakewood-based Colorado Goldfields Inc. two ways. The company is listed under the symbol “CGFIA.PK,” its Pink Sheets home, while also appearing under its old Bulletin Board ticker of “CGFIA.OB.”

One can still access the current listing at the former symbol — but overall, these dual listings leave the false impression that Colorado Goldfields, which in fact opened in 2004, just started up and has only a few weeks’ worth of trading activity.

Some background on the stock market:

A blue-chip stock is one with a national reputation for quality, reliability and the ability to operate profitably in good times and bad, according to New York Stock Exchange. The term “blue chip” comes from poker, where chip colors include white, red and blue, with the blues being highest in value. If a white chip is worth $1, a red is usually worth $5 and a blue $10.

It follows then that as stocks become more risky, their color goes from blue to red to white. Or, in the case of very risky stocks, it’s a little red mixed with white, creating pink. Hence the term “pink sheet” stocks.

To be quoted in the Pink Sheets, companies aren’t required to fulfill any reporting requirements, not even to the Securities and Exchange Commission. In common usage, blue-chip stocks are the best of the best, while pink sheet stocks are very risky, non-reporting companies.

Recently, OTC Markets Group organized the OTC marketplace into three tiers based on the level of disclosure companies choose to provide to investors: OTCQX, OTCQB and OTC Pink. The OTCQB is an effort to identify fully reporting issuers from non-reporting issuers, especially those recently delisted from OTCBB.

Stock exchanges are private organizations in a central location with a limited number of members. In order for a company to be listed on an exchange, the company must meet certain criteria. This is where most blue-chip companies reside.

Stocks that aren’t listed on an exchange trade in the OTC market.

The OTCQB market tier now includes the securities of more than 851 SEC-reporting companies and banks formerly designated as Pink Sheets stocks, in addition to the 3,050 securities that previously were quoted in both OTC Markets Group’s electronic interdealer quotation system and FINRA’s OTCBB.

As of March 23, there were 3,901 issuers being traded on the OTCQB.

What’s the bottom line? To find fully reporting companies that aren’t listed on an exchange, but rather in the OTC market, investors now must look to OTC Markets Group’s OTCQB.

And now obsolete are the old notions of Bulletin Board companies being fully SEC reporting and Pink Sheet ones being non-reporting.

© C. Stephen Guyer for American City Business Journals Inc. All rights reserved.