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Microcap & Penny Stocks : TSIG.com TIGI (formerly TSIG) -- Ignore unavailable to you. Want to Upgrade?

To: Mylan Hart who wrote (43134)	10/29/2000 12:52:53 PM
From: REW	Read Replies (1) \| Respond to of 44908

On the Street Cleaning Up the Bulletin Board By Matthew Goldsetin October 26, 2000 EARLIER THIS YEAR, during those halcyon days when the Nasdaq Composite was hovering at the 5000 mark, one of the hottest stock markets was - believe it or not - the OTC Bulletin Board. Trading in obscure "penny stocks" got so feverish that for a time more shares changed hands each day on the Bulletin Board than were traded on the esteemed New York Stock Exchange. And in the midst of all this frenzied stock trading by millions of investors, the antiquated system for handling Bulletin Board trades almost came to a screeching halt. That's because most of the behind-the-scenes activity on the Bulletin Board still involves traders executing orders over the telephone rather than communicating with computers - as is done on the Nasdaq Stock Market. Having to rely on a system that's the stock-trading equivalent of the old Pony Express, market-maker firms and small brokerages found they simply didn't have enough people to staff the phones during the deluge. The result: Many trades never got executed, or some got completed at prices far different from the quotes investors saw on their computer screens. Angry investors cried foul and complained to regulators. Meanwhile, conspiracy theorists began spinning some far-fetched tales on online message boards about evil market makers and trading firms secretly manipulating the prices of Bulletin Board stocks. "We got a lot of calls from investors saying, 'I was putting in a market order to buy for 60 cents and it got executed at $1.20,'" says Adena Friedman, a vice president at Nasdaq, which oversees the Bulletin Board in conjunction with the National Association of Securities Dealers, Nasdaq's parent company. "There really was no one to blame. The volume was just so heavy. The phones were flooded." The big sell-off in technology stocks this spring had at least one salutary effect - it eliminated, at least temporarily, most of those trading problems by dampening the investing public's appetite for risky penny stocks. But in an attempt to bring the Bulletin Board into the 21st century before the next wave of investor speculation swamps the markets, the NASD wants to develop a computer network for trading Bulletin Board stocks. On Oct. 12, it announced plans for a new system that'll enable trading firms to quickly process buy-and-sell orders in pretty much the same manner as they do on the Nasdaq. The plan to automate Bulletin Board trading must be approved by the Securities and Exchange Commission. But most market watchers expect that will happen. Lee Korins, president of the Security Traders Association, a group that represents brokerages and trading firms, says he "can think of no reason why anyone would be against it." Lisa Ulshafer, a founder of an online investment club for penny stocks, says the members of her Copper Club Investments view the proposal as a "step in the right direction." Actually, the proposal is just the latest in a series of steps taken by the NASD to polish the image of the Bulletin Board, which historically has been something of a market backwater and a breeding ground for stock scams. For a long time, it wasn't uncommon to find stocks of bankrupt or defunct companies still trading on the Bulletin Board. But just over a year ago, the NASD began cleaning house, bouncing from the market thousands of companies that failed to file annual reports with the SEC. Pennies From Heaven? * Data through Sept 30 Source: Nasdaq Today, there are 3,578 stocks trading on the Bulletin Board - nearly 3,000 fewer stocks than at this time last year. But even though the Bulletin Board is much smaller now, it's more popular than ever with ordinary investors - in particular those who trade online. While trading in Bulletin Board stocks is down substantially in the latter half of this year, the 5.12 billion shares traded this September was 12% higher than the number traded the same time last year. And the longer-term boom in Bulletin Board trading is striking: In 1995, total trading volume on the Bulletin Board was just 10 billion shares. During just the first nine months of this year, it was 100.5 billion shares. In recognition that small investors - rightly or wrongly - are putting more of their money into Bulletin Board stocks, the NASD appears bent on moving forward with even more reforms. In a speech this month at the Security Traders Association annual convention, Mary Schapiro, president of NASD Regulation, noted that growing "investor interest demands market structure and regulatory attention." One of the things regulators are considering is converting the Bulletin Board into a "listed" market - just like the Nasdaq and NYSE. In a listed market, companies must comply with a series of requirements before their stocks are permitted to trade. Some of these include maintaining a minimum stock price, issuing periodic reports to shareholders and appointing a designated number of independent corporate directors. Regulators also would have greater authority to halt trading in a Bulletin Board stock and investigate trading irregularities. There's certainly plenty of room for improvement in the operations of the Bulletin Board. The explosion in trading there has occurred in something of an information vacuum. Besides the scanty disclosure requirements that pertain to these stocks, the financial media spends little time on penny stocks - except to report on scams - and many Wall Street analysts won't follow a stock that trades below $5. The main sources of information for penny-stock investors often tend to be online message boards and so-called pay-for-hire newsletters, television shows and Web sites, which are usually nothing more than stock-touting operations. Still, for many investors, the Bulletin Board offers a seemingly cheap way to enter the market. Investors think they're potentially getting more bang for their buck when they buy 100 shares of a $1 stock rather than spending $100 to buy a single share of some big technology stock. "For a lot of people who don't have a lot of money, it's a way to move up faster," says Ulshafer. "It's almost got a gambling fever to it. It's risky, but the payoffs are huge." Regulators may not be able to stop investors from putting money into risky penny stocks that many of them know little about. But it's certainly about time that the NASD flash its tin badge around this Wild Wild West of the markets.