Microcap Stock
A Guide for
Investors
Information is the investor's best
tool when it comes to investing wisely. But accurate information about
microcap stocks - low-priced stocks issued by the smallest of
companies - may be difficult to find.
Many microcap companies do not file financial reports with the
SEC, so it's hard for investors to get the facts about the company's
management, products, services, and finances. |
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In the battle against microcap
fraud, the SEC has toughened its rules and taken actions against
wrongdoers, but we can't stop every microcap fraud. We need
your help in winning the battle. Before you consider investing in a
microcap company, arm yourself first with information. This alert
tells you about microcap stocks, how to find information, what "red
flags" to consider, and where to turn if you run into trouble.
What Is a Microcap
Stock?
The term "microcap stock"
applies to companies with low or "micro" capitalizations, meaning the
total value of the company's stock. Microcap companies typically have
limited assets. For example, in cases where the SEC suspended trading
in microcap stocks, the average company had only $6 million in net
tangible assets — and nearly half had less than $1.25 million.
Microcap stocks tend to be low priced and trade in low volumes.
Where Do Microcap Stocks Trade?
Many microcap stocks trade in the
"over-the-counter" (OTC) market and are quoted on OTC systems, such as
the OTC Bulletin Board (OTCBB) or the "Pink Sheets."
OTC Bulletin Board The OTCBB is an electronic quotation system that
displays real-time quotes, last-sale prices, and volume 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. Although the NASD oversees the OTCBB, the OTCBB is not
part of the Nasdaq Stock Market. Fraudsters often claim that an OTCBB
company is a Nasdaq company to mislead investors into thinking that
the company is bigger than it is.
The "Pink Sheets"
The Pink Sheets
named for the color of paper on which
they've historically been printed — are listings of price quotes for
companies that trade in the over-the-counter market (OTC market).
"Market makers" — the brokers who commit to buying and selling the
securities of OTC issuers-can use the pink sheets to publish bid and
ask prices. A company named Pink Sheets LLC, formerly known as the
National Quotation Bureau, publishes the pink sheets in both hard copy
and electronic format. Pink Sheets LLC is not registered with the SEC
as a stock exchange, nor does the SEC regulate its activities. |