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March 1, 1999

Pink Sheet Company Is Seeing More Black An Old-Fashioned Marketplace Is Going High-Tech

By Om Malik

Also in this article

  • Pink Sheet Company Is Seeing More Black An Old-Fashioned Marketplace Is Going High-Tech

Lured by the benefits of using digital technology instead of paper for publishing its stock quotes and obviously eyeing more subscribers the National Quotation Bureau's (NQB) Pink Sheets are being automated.

Beginning next month, the 3,000 companies traded on the Pink Sheets a subset of the non-Nasdaq over-the-counter market will have their share prices disseminated in real-time on traders' computer screens.

NQB Chairman Cromwell Coulson said overall spending for the new system is $1 million. Random Walk in New York is building the technology backbone.

The upgrade, however, does not turn the Pink Sheets into a type of lower-tier Nasdaq.

Aside from real-time trade data, including the quantity of shares available and market makers' telephone numbers, orders must still be negotiated between two market makers haggling on the telephone. The automated Pink Sheets will not have electronic order delivery and execution similar to Nasdaq.

Nonetheless, bringing the Pink Sheets into the digital age was on Coulson's mind when he and a group of investors acquired the New York-based company from a hedge fund 18 months ago. Before that, the 86-year-old Pink Sheets were run, some say half-heartedly, by Commerce Clearing House.

"Putting the Pink Sheets online is a long overdue step," said John Keefe, a New York-based securities-industry consultant. "Technologically, it sounds real simple to do it for a market out there on the margins."

Currently, about $20 million to $50 million changes hands every day among investors trading U.S.-listed companies on the Pink Sheets, while another $400 million is transacted in Pink Sheet ADRs, or American Depository Receipts.

The stocks are typically micro-caps, although on the ADR side, in particular, they do include some big names, including Nestle's, Siemens and Nintendo.

These companies will soon be joined by an estimated 2,000 to 3,500 more companies likely to be delisted from the automated OTC Bulletin Board as a result of new listing rules.

The bulletin board, run by the National Association of Securities Dealers, is home to 6,500 companies. But the number staying there could soon shrink dramatically.

The Securities and Exchange Commission recently approved an NASD regulation requiring all bulletin board-listed companies to file updated financial information with regulators.

Only about half of the bulletin-board companies do so. The other half are expected to delist and move to the Pink Sheets, which does not require regularly updated financial reporting.

The new rule is part of an SEC drive to stamp out micro-cap stock fraud. A related SEC rule, increasing the responsibilities of market makers trading stocks on the bulletin board and the Pink Sheets, requires them to review financial information for potential red flags. The rule, revised to exempt larger companies, is opposed by traders.

What's New

The new automated environment for Pink Sheet trading will replace the traditional pink-colored paper that carries regular, though clearly not real-time, information on OTC stocks.

Instead of a daily fax and weekly directory with the latest bid and asked prices, the upgraded service will publish the most current spreads via access providers such as Reuters, Bridge Information Services and Bloomberg. NQB's fees for the terminals are based on volume discounts, on a sliding scale from $150 to $30 a terminal.