OTCBB and Penny Stocks
What is the correct definition of a penny stock? A more correct and more accurate definition is stocks that get traded on Over The Counter Bulletin Board or OTCBB. However, any stock trading for less than $5 per share is also called a penny stock. Both these definitions are correct. There is not one way of defining a thing. But the most accurate definition of a penny stock is a stock listed on the Over the Counter Market and the Pink Sheets.
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Many investors specialize on investing in companies headed for bankruptcy. But it is always more profitable to invest in companies that are awaiting their future than companies that have no future and are fast headed to their decline and liquidation. Now many companies who now trade for more than $50 once traded for under $1 like Microsoft, MCI, Toys R Us and many others. So you can well imagine the potential for penny stock investing.
So, penny stocks get traded on Over the Counter Bulletin Board (OTCBB). OTCBB is a market where a company can get listed with less stringent requirements as compared to NYSE or NASADQ. Most of the young and promising companies start with OTCBB. OTCBB is a regulated quotation service. It diplays real time quotes. It has the sales price as well as the volume information of those stocks that get traded on it.
Over the Counter Market (OTC) started in 1990 when the Penny Stock Reform Act of 1990 was passed. Penny Stock Reform Act of 1990 mandated Securities and Exchange Commission (SEC) to start an electronic system that would implement the rules of Section 17B of the Exchange Act. This OTC Market eventually became the Over the Counter Bulletin Board (OTCBB).