What are the Pink Sheets?

Contrary to public perception, the Pink Sheets are not a stock exchange. The Pink Sheets are a quotation service designed to aid in the trading of mostly unregulated inexpensive stocks known as penny stocks. The name derives from its days as the National Quotation Board (NQB), when stock prices were published on sheets of pink newsprint.

The NQB was founded in 1913. In its day, the NQB was a true market pioneer; using the most advanced communications technologies then available, it gathered and disseminated stock quotations from over four dozen cities across the United States. In 1963, the Commerce Clearing House purchased the NQB. The emphasis on technology and rapid information exchange was dropped, and before long the NQB had been reduced to publishing monthly journals. This lead directly to the formation of the National Association of Securities Dealers (NASD) and the Nasdaq Stock Market, as NQB was no longer filling the need for realtime quotations of lightly traded stocks.

In 1997, the NQB reorganized under new management and, in a nod to its heritage, soon changed its name to Pink Sheets, LLC. An electronic quotation service was established shortly thereafter.

It is ironic that the Pink Sheets, widely viewed as a source of seemingly endless stock fraud, were once pioneers in market regulation. When the SEC was first established in 1933, it had lower standards than were already being imposed by the NQB.

Today the situation is considerably different. Pink Sheets, LLC is very careful to describe itself as a quotation service and not an actually stock exchange. They do not qualify brokers, and impose no regulatory requirements whatsoever on companies whose stock they quote. All that is required for a stock - virtually any stock - to get its quotations included on the Pink Sheets is contact information for the company and a broker willing to make a market in the stock. It is a canonical example of a caveat emptor marketplace.