Pink Sheets (Pink Market) — Overview

“Pink sheets” is an older term for stocks that trade over‑the‑counter (OTC) rather than on a major U.S. exchange. The name comes from the color of the paper on which OTC quotes were once published. Today the marketplace is electronic and organized by OTC Markets Group, but the colloquial name endures. OTC trading provides a venue for companies that either do not meet exchange listing requirements or prefer to avoid the costs and reporting obligations of an exchange listing.

How the OTC market works

• OTC securities trade in a decentralized market through a network of dealer broker‑dealers and alternative trading systems (ATSs) rather than on a central exchange.
• Two principal interdealer quotation systems are Global OTC ATS (part of NYSE Group) and OTC Link ATS (operated by OTC Markets).
• Many foreign companies list on their home exchanges but also trade OTC in the U.S. to reach U.S. investors without duplicative exchange filings.

OTC Market tiers

OTC Markets Group organizes OTC trading into tiers with different disclosure and financial standards:

• OTCQX — highest standards for financial reporting and investor transparency.
• OTCQB — middle tier with investor protections and ongoing disclosure requirements.
• Pink Market (Pink Open Market) — lowest standard among the three regulated tiers; more open and speculative.
• Expert Market — minimal or no public disclosure; trading quotations are unsolicited.

Companies that meet strict disclosure criteria trade on OTCQX or OTCQB; those that do not generally default to the Pink market. Many types of issuers appear in the Pink market, including small domestic companies, penny stocks, shell companies, and some reputable foreign firms that avoid the cost of U.S. exchange listings.

Regulation and disclosure requirements

Regulation of the Pink market has tightened over time to improve transparency and reduce abusive practices:

• Rule changes have eliminated “dark” securities and restricted broker‑dealers from publishing quotations for issuers that don’t make information publicly available.
• Companies trading in OTC markets must provide disclosure documents and post verified information on the OTC Markets website.
• Financial statements must be prepared under U.S. GAAP or IFRS; they need not always be audited, depending on the issuer and tier.
• Typical disclosure required for many domestic issuers includes:
• Most recent annual report with two years of comparative financial statements.
• Any subsequent quarterly reports.
• A disclosure statement.
• An attorney letter for unaudited companies.
• Failure to meet disclosure obligations can lead to tier demotions (for example, from Pink Current to Pink Limited) and eventual movement to the Expert Market if requirements are not satisfied.

Pink Market categories: Current vs. Limited

• Pink Current: Issuers that provide timely and complete disclosures per OTC Market guidelines.
• Pink Limited: Issuers that provide limited or delayed information and meet only minimal regulatory requirements.
• Expert Market: For issuers that do not meet Pink Limited criteria; quotes may be unsolicited and public broker‑dealer quotations are generally not available.

Pros and cons

Pros
– Provides small or foreign companies a path to access U.S. capital and U.S. investors without exchange listing costs.
– Low share prices can create opportunity for substantial gains if the company succeeds.
– Generally lower transaction and listing costs compared with major exchanges.

Cons
– Less regulation and lighter disclosure increase the risk of outdated, incomplete, or misleading information.
– Higher susceptibility to fraud and market manipulation.
– Low liquidity and thin trading can make it difficult to buy or sell shares at desired prices.
– Greater due diligence is required by investors.

Examples of OTC‑traded issuers

Some well‑known foreign companies and funds also appear on OTC marketplaces to make their securities available to U.S. investors without full U.S. exchange listings. Examples (as traded OTC) include:
– Grayscale Ethereum Trust (ETHE)
– Roche Holding Ltd (RHHBY)
– Nestlé S.A. (NSRGY)
– Tencent Holdings Ltd (TCEHY)

What is OTC Link?

OTC Link ATS is an electronic inter‑dealer quotation system operated by OTC Markets Group that displays bid and ask quotes from broker‑dealers for many OTC securities. Broker‑dealers use it to publish prices for OTC trades.

Bottom line

The Pink market is the most speculative and least regulated tier of OTC trading. While it offers smaller and foreign issuers a low‑cost way to access capital and U.S. investors, it also carries heightened risks—limited disclosure, low liquidity, and greater potential for fraud. Investors considering Pink market securities should perform careful due diligence, prefer issuers with timely, transparent reporting, and understand the trade‑off between potential high returns and elevated risk.