According to the SEC, The term “microcap stock” (also known as “penny stock”) applies to companies with low or micro market capitalizations. Companies with a market capitalization of less than $250 or $300 million are often called “microcap stocks” – although many have market capitalizations of far less than those amounts. The smallest public companies, with market capitalizations of less than $50 million, are sometimes referred to as “nanocap stocks.” This series of bulletins will use the term “microcap stock” to refer to both microcap stocks and nanocap stocks.
Many microcap stocks trade in the “over-the-counter” (OTC) market. Quotes for microcap stocks may be available directly from a broker-dealer or on OTC systems such as the OTC Bulletin Board (OTCBB), OTC Link LLC (OTC Link), or Global OTC.
Three Reasons Microcap Stocks are different from other stocks:
Lack of public information. Often, the biggest difference between a microcap stock and other stocks is the amount of reliable publicly-available information about the company. Most large public companies file reports with the SEC that any investor can get for free from the SEC’s website.
No minimum listing standards. Companies that list their stocks on exchanges must meet minimum listing standards. In contrast, companies quoted on the OTC Bulletin Board (OTCBB), OTC Link LLC (OTC Link) or Global OTC generally do not have to meet any minimum listing standards, but are typically subject to some initial and ongoing requirements.
Risky. While all investments involve risk, microcap stocks are among the most risky. Many microcap companies are new and have no proven track record. Some of these companies have no assets, operations, or revenues. Others have products and services that are still in development or have yet to be tested in the market. Another risk that pertains to microcap stocks involves the low volumes of trades, which may make it difficult for you to sell your shares when you want to do so.
If you have suffered losses and believe you may be a victim of investment fraud, please call the securities attorneys of The White Law Group at 888-637-5510 for a free consultation.
This information is provided by The White Law Group, a national securities fraud, securities arbitration, and investor protection law firm with offices in Chicago, Illinois and Vero Beach, Florida. For more information on The White Law Group, visit http://www.whitesecuritieslaw.com.
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