Many investors are unclear on the requirements for Pink Sheets shares and how they can be upgraded to the NASDAQ. In order to be listed on NASDAQ, companies must meet strict standards including being registered with the Securities and Exchange Commission (SEC), acquiring at least three market makers for their securities, and maintaining minimum requirements for assets, capital, shareholders, and public actions. Many companies choose to issue pink-leaved penny shares initially because the requirements to go from pink to NASDAQ are difficult or impossible to meet during the first few years of operation.
Here are the top 6 requirements for Pink Sheet shares to upgrade to a major stock exchange:
- Reporting requirement – In order to be listed on the NASDAQ, companies that currently issue pink sheets must subject themselves to strict SEC supervision and reporting regulations. These information requirements provide investors with a higher degree of confidence and serve as benchmarks for the overall performance of the company. These requirements are much more substantial than the listing requirements for rose listings on the OTCBB (Over-the-Counter Bulletin Board).
- Market Makers – NASDAQ market makers typically deal with established companies and offer proven stocks to their clients. Startups and companies in decline may have a difficult time finding market makers who meet the requirements to go from pink to NASDAQ.
- Assets – Companies that once offered shares on NASDAQ may have the necessary asset levels, but may not or may not be able to provide the SEC documentation required for NASDAQ listings. Some companies are delisted on NASDAQ on purpose.
- Capitalization – Pink sheet stocks generally do not meet NASDAQ’s capitalization requirements. Some startups can achieve this in a few years, but for many companies this is a long and complex process.
- Shareholders – Maintaining the required number of shareholders can be difficult for startups with limited investment opportunities and for companies that have struggled in the market in the past.
- Public actions – The percentage of public actions vs. Preferred shares are an important element in determining whether a company is eligible to be listed on the NASDAQ. The liquidity of those stocks can also be a factor; If there is no real market for stocks, then companies typically cannot move from the pink-leaf stock market to NASDAQ trading.
The pink penny stock market is more speculative than traditional securities venues and carries greater risk for investors. Penny sheet pink shares are typically issued by companies that currently cannot meet the requirements to go from pink to NASDAQ; This includes startups and high-risk companies. As a result, investing in the pink leaf stock market must be balanced with lower risk investments in the stock exchanges and regular securities.