Penny stock

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The SEC defines the term penny stock as a low-priced (below $5), speculative security of a very small company. Penny stocks are generally quoted over-the-counter, on the OTC Bulletin Board (OTCBB) or in the Pink Sheets. They may also trade on securities exchanges, including foreign securities exchanges. Penny stocks also include the securities of certain private companies with no active trading market.[1]

Penny stocks may trade infrequently and therefore be difficult to sell. They may also be hard or impossible to price accurately, because of the difficulty of finding quotations for certain penny stocks.

In October 2014 an SEC filing disclosed FINRA's plans to close the OTCBB, while tightening regulations around data collection from, and fair access to, OTC marketplaces. There are nearly 10,000 U.S. and global quoted OTC stocks. The filing showed that FINRA was concerned about the difficulty of pricing these stocks because there are so few market makers quoting bids and offers on OTCBB. Investors looking to the inter-dealer quotation system for pricing information could be harmed, according to the filing.[2]


References

  1. Penny Stock Rules. Securities and Exchange Commission.
  2. Wall St. watchdog to shut penny-stock market, boost OTC oversight. Reuters.