Weekly Thoughts: OTC BB Garbage Pit
By JANE B. QUINN
The National Association of Securities Dealers (NASD) is cleaning out its garbage pit, otherwise known as the OTC Bulletin Board. That's where prices are quoted for stocks that aren't listed on the various stock exchanges. For the first time, Bulletin Board stocks will have to live up
to respectable financial-reporting standards. If they don't, they'll be thrown off.
About 6,700 companies trade on the board, which the NASD started in 1990. Many of them are legitimate. But the Board is also a playground for stock manipulators and crooks.
Until recently, the NASD didn't pay much attention. The Bulletin Board quoted the price of any stock, of any quality, that a broker wanted to sell. The company didn't have to file regular financial reports.
No one checked to see whether it was a real business or an empty shell. As a result, phony stock promotions flourished. Bulletin Board stocks have been the favorites of cheating Internet rumor sites and high-pressure
telephone crooks.
The NASD found itself under fire for tolerating such a
mess, especially now that so many new investors are influenced by the Web.
Board volume more than tripled in the past year, says Adena Friedman, director of trading and market services. This year, the board is averaging 350 million shares a day.
So finally, some minimum standards are looming into view, which should clear out the worst of the companies.
Since January, all stocks that come to the Bulletin Board for the first time have been required to file audited financial reports with the Securities and Exchange Commission, a banking regulator or an insurance regulator.
This reporting rule was extended to all the stocks traded there.
The NASD is checking these older stocks in alphabetical order. In the first group of 93 stocks, only 29 were filing the proper reports. Another 13 hurried to do so. The remaining 51 don't report, so their prices no longer show on the board.
In the second group of 177 stocks, 121 were thrown off.
Think about it: That's 172 so- called public companies
that won't disclose to their investors their actual financial status and business prospects. They may send you short, self-serving statements, but they recoil at the level of truth required in filings to regulators.
The NASD's cleanup squad expects to finish by next June; about 3,000 stocks may get the boot.
Anyone holding a stock that's quoted on the board should ask the company whether it's complying (or will comply) with the NASD's new rules. If the answer is no, ask yourself why you're investing.
You might check on the companies that have been kicked off the board so far. You'll find their names and ticker symbols at otcbb.com.
All is not lost for speculators dedicated to mystery
stocks. Starting last week, a new electronic garbage pit opened for business: the Pink Sheets Electronic Quotation Service. In print form, the Pink Sheets has been published since 1913, by the National Quotation Bureau (NQB). It's a daily list of some 6,000 stocks not traded on any exchange.
Any company can be quoted on the Pink Sheets; no continuing financial disclosures are required. ''We're the flea market of securities,'' NQB chairman Cromwell Coulson told my associate, Dori Perrucci.
He expects to pick up 2,000 to 3,000 stocks the Bulletin Board boots off. Initially, electronic quotes are available only to brokers. But eventually, they'll be on the Internet for everyone to see.
Innocents & naives will move seamlessly from the Bulletin Board to the Pink Sheets, led by the same crooked stock manipulators who conned them before.
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