The Five Tiers of the Pink Sheets

The Five Tiers of the Pink Sheets

In an effort to squelch your fears, let’s quickly cover each niche of the Pink Sheets, beginning with the most trusted tier.

Tier 1: OTC Current Information (Trusted)

The “Trusted” tier includes 5,017 companies that are required to file periodic disclosure reports.

These companies must also be listed on another recognized global exchange.

Well-known companies like Isuzu Motors, Panasonic, Tootsie Roll, Nissan Motor, Suzuki Motor, Air China and International Speedway trade daily on Tier 1.

Tier 2: OTC Pink Limited Information (Distressed)

Having financial reporting problems or just filed for bankruptcy?

No worries.

Tier 2 exists specifically for distressed companies to continue trading while management gets its house in order.

This tier is presently home to 176 companies, including World Poker Store, Affinity Beverage Group, 420 Property Management and a slew of natural resource companies and miners.

Tier 3: OTC Pink No Information (Dark)

Did someone turn the lights out? Yes!

Tier 3 is where financial transparency goes out the window.

Companies trading here — 3,023 of them — are not able or not willing to provide financial information to the public.

Still, you can’t throw these babies out with the bath water.

Take Hershey Creamery, for example — a “dark” company listed on Tier 3.

Hershey Creamery is the ice cream arm of The Hershey Co. — the Pennsylvania chocolatier that trades on the NYSE. Hershey Creamery trades for $3,700 per share.

Ocean Spray Cranberries is a “dark” company that lives on this tier, too.

Tier 4: Caveat Emptor (Blocked)

Technically, the last two tiers aren’t officially part of the Pink Sheets.

To be thorough, though, let’s cover them anyway.

There’s no way to invest in Tier 4. That is, because these companies have been blocked by regulators.

Potential reasons for being blocked include spam campaigns, questionable stock promotions, investigation of fraudulent or other criminal activities, regulatory suspensions or disruptive corporate actions.

Tier 5: The Grey Market (Enigmas)

I must confess…

The grey market fascinates me.

It’s hard to even get a quote for 7,872 companies listed on the grey market.

Ample liquidity is a problem here.

Also, lack of investor interest renders the cost of “making a market” not worth it.

Still, plenty of “grey” companies are priced above $10 a share — 1,433 of them, to be exact.

The lists of greys include Country Club of Virginia… vision company Essilor… homeopathic-maker Boiron… and Covestro — a spinoff of material-science powerhouse Bayer.

Dissemination of information (or lack thereof) largely dictates the movement of a stock.

Dow 30 stocks adjust to new information virtually instantaneously.

Grey companies lie at the opposite end of the spectrum.

New information among grey companies isn’t even picked up by the media, let alone by an analyst.

For this reason, investors should never ignore the grey market. It holds the most potential to exploit informational advantages for maximum gains if you're willing to do the diligence and take the additional risks.