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Scott Jagow: When we talk about the stock market, we’re usually referring to the big fellas — The New York Stock Exchange, the NASDAQ. But there’s a whole other world known as the over-the-counter market. Companies that trade over-the-counter can’t meet the standards of a traditional exchange. Maybe you’ve gotten a spam e-mail hyping a stock. That’s the kind of thing we’re talking about. But there is a man trying to bring some order to OTC trading. Amy Scott has more.
Amy Scott: The over-the-counter market has long been known as the Wild West of stocks.
Cromwell Coulson: The securities run from very good, strong, international companies, to the most speculative, the most troubled, the most questionable.
That’s Cromwell Coulson. A little over a decade ago, he bought a company that published what are known as the Pink Sheets. They were a sort of price list for over-the-counter stocks, printed on pink paper. Old-fashioned, yes. And rife with fraud, because there wasn’t much accountability.
Coulson took the service online. And he created a system to separate the good stocks, from the bad and the ugly ones, like companies touted in stock spam campaigns or suspected of fraud.
Coulson: It’s almost impossible to eradicate this part of the business. What we wanna do is slow it down. And the way you slow it down is you separate out the good companies.
At the headquarters of Pink OTC Markets, as the company’s now called, everything is pink — from the chairs to the Venetian blinds to the jars full of jelly bellies.
Coulson: Here’s Air France. The market is 24-20, 24-60 . . .
Last year, Coulson introduced a higher tier of the Pink Sheets called the OTC-QX.
It includes U.S and foreign companies that disclose financial information. but may not report to the Securities and Exchange Commission.
Mike Molitor teaches securities law at Thomas M. Cooley law school in Michigan. He says big-name foreign companies like Air France and Roche want access to U.S. investors.
They don’t want the expense and hassle of reporting to the SEC.
Mike Molitor: It basically just allows them to have securities traded in the U.S. without having to worry so much about additional U.S. securities law requirements.
For companies that don’t qualify for the OTC-QX, the Pink Sheets now offer a sort of rating system. Highest marks to companies with up-to-date information. A skull and crossbones for those with a hint of fraud.
Until recently, Steven Despres traded Pink Sheets stocks for a major U.S. bank. Despite these improvements, he says the market is best left to sophisticated investors.
Steven Despres: Just for an average investor, I would probably say it’s not the best arena. You kind of have to do a little homework.
Cromwell Coulson says he’s made it easier for investors to do that homework…by shining a little more light on what had been a dark corner of the market.
In New York, I’m Amy Scott for Marketplace.
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