Grey Sheets, also spelled "Gray Sheets," and also known as the "Gray Market" is another category of OTC stocks that is completely separate from Pink Sheets and the OTCBB.
The differences are as follows . . .
Unlike other financial markets,
• No recent bid or ask quotes are available because no market makers share data or quote such stocks. There is no quoting system available to record and settle trades.
All Grey sheet trading is moderated by a broker and done between consenting individuals at a price they agree on. The only documentation that can be publicly found regarding the trades is when the last trade took place.
• No SEC registration and little SEC regulation. Regulation of Grey Sheet stocks takes place mainly on a state level. Unlike Pink Sheets, these stocks have no SEC registration to possess a stock symbol or to possess shares, or trade shares, of that stock.
• Such penny stocks, similar to Pink Sheets, are not required to file SEC (Securities and Exchange Commission) financial and business reports.
• These stocks may not be solicited or advertised to the public unless a certain number of shares are qualified to be traded publicly under 504 of Regulation D.
• Extremely Illiquid. Gray sheet trading is infrequent, and for good reason... Difficult to trade, not advertised, difficult to follow the price, the least regulation possible, hard to find any information on the stock, very small market cap, little history, and most such stocks do not yet offer public shares; so shares of such stocks are commonly privately held.
The lack of information (bids, history, financial reports) alone causes most investors to be very skeptical of Gray Sheets and avoid them altogether. Grey sheets trading is rarely made by Extraordinary Investors.
• Shares of such penny stocks are privately held and restricted from being sold publicly unless such company files a 504 of Regulation D and meets basic qualifications; for instance, have a concrete plan of operation, and a certain number of private stocks being held for at least one year, and a planned sale of shares worth no more than $1 million. The benefit of the public offering of stock is to raise capital for operations.
Gray Sheets are commonly associated with Initial public offering (IPO) stocks or start up companies or spin-off companies.
Actually most Gray Sheet stocks are not IPO's. But many are start-ups and some are spin-offs.
IPO's are new shares of stock publicly sold unofficially before they trade on any stock exchange or other financial market.
In the case of IPO's, start-ups, and spin-offs...
The idea for being listed on the Gray Sheets is most likely for seven major reasons:
• to obtain a stock symbol, transfer agent, and shareholder base without attracting attention from the general public, at least for the time being.
• to formulate, structure, and pursue a business plan and operation for future growth and success.
• to gain a history of trading, and shareholder growth, until such time that a company qualifies to offer public shares, or to be traded on the Pink Sheets, OTCBB, or one of the stock exchanges. This all depends on the goals of a company and its qualifications.
• to accumulate shares from private and public sources in preparation to meet requirements to be listed on the Pink Sheets or OTCBB.
• to get an idea of the investor reception once they are officially traded (for IPO's).
• to gain investor awareness and potential funding/financing options.
• to limit the fees and regulations associated with Pink Sheets, OTCBB or the Stock Exchanges. Many start-ups do not qualify to register to trade on the other financial markets.
In addition, the costs associated with registering can be prohibitive.
The Grey Sheets offer a start-up company the opportunity to grow so that later they may meet the qualifications and expenses to be traded on a more prestigious financial market.
Grey Sheets is also Home to delisted stocks from other markets
Some stocks on this financial market were once traded on the NASDAQ, OTCBB, or the Pink Sheets but ran into serious misfortune - usually financial - and thus failed to meet the minimum requirements of the registered SEC filings and/or stock exchange regulations for a financial market. Such stocks were delisted or removed and may begin trading on the Grey Sheets.
Besides start-up companies and delisted stocks. . .
Grey Sheet Trading: Some companies choose be listed or traded on in these sheets or remain on these sheets.
If a company chooses to be traded on these Sheets, then the shares are many times held privately by management, employees and others associated with the company. Such stock is traded privately between these stock holders. Shares of such stock are extremely illiquid.
The History of Gray Sheet Stocks in general
Obviously this type of stock usually has very little history. And finding information on such stocks is difficult if not impossible since they are not required to file such reports with SEC (The Securities and Exchange Commission).
Selling such shares of stock can be difficult and very slow for the reasons given.
So grey sheet trading generates great risk if you can trade them at all.
Those Gray Sheets stocks that do have a history must be studied carefully - if you can find the information.
Although companies with a history may have had serious past problems, they may still have novel and exciting developmental product(s) in the making that could become in high demand.
And/or the company may have pulled out of their past problems and are now productive valued companies that choose to remain on the Grey Sheets.
I am thinking though that many such companies would have been, or will likely be, targets to be merged with, or bought out by, larger companies if such super products, or patents, are actually in development that are worth their weight in gold.
Why?
Because if shares are available for public trading, such companies can be bought or controlled for a fraction of the price then if traded on a stock exchange or even the OTCBB. This deal is possible because of the low number of shares outstanding.
Risks of Grey Sheet Trading...
Grey Sheet Trading is inherently risky for the following reasons:
• If Gray Sheet stocks register to offer public shares, then you can only trade them through a broker that agrees to participate in that stock transaction. Such agreement is verbally expressed between the buyer and seller and is based on mutual good will.
If such agreement is broken by either participant before the transfer of shares occurs, there is little, if any, legal recourse to make the participant comply. Broker commissions for such transactions are far higher than for other securities - the broker's cut for services rendered.
• No way to track bids and asks and difficult to figure what the stock is actually worth.
• Very difficult to impossible to find good fundamental and technical information on these stocks.
• Such stocks mostly have very little history and may fold any time.
• Many of these stocks are likely companies in name only with little to show.
• Most of these stocks are very illiquid - difficult to buy and may be more difficult to sell.
• Management has more control over the shares.
Risks are Limited in some important areas:
The SEC has established certain regulations for Gray Sheet stocks that limit risks to investors, as follows:
• The stock may not be solicited or advertised - so pump-n-dump scams by broker, mail, fax, etc are limited.
• Grey Sheet stocks that do have a public offering of shares cannot be shorted. This is a benefit in that unreasonable plunges in share values are minimal because broker-dealers and other investors and scam artists cannot short the stocks by law.
Gray sheet stocks usually trade higher than they would when officially traded on one of the exchanges considering the size of the company, but that is mostly because so few shares exist with such low market cap - less than $1 million usually - in comparison to publicly traded companies.
Private Companies desiring Grey Sheet status through acquiring grey sheet shell companies...
Acquiring a shell company does not require that much paper work - filing for a corporation etc., not near as much as obtaining your own legal business documentation or ticker symbol.
Be careful with grey sheet shell companies.
*Watch for hidden debt. No readily accessible financial reports are available.
*Be careful for old lawsuits pending. You purchase the shell and any problems it may have legally; thus, the legal issues may now be your problems.
*As a requirement for purchase, the shell company management may desire to retain their shares of stock in your company once you acquire their shell, which can be worth far more to them than actual cash received from a buyout or normal merger if your company truly has a significant chance for success.
*For a merger, the management may desire shares of your stock in exchange for a discount sale of their company.
*if the grey sheet company is not yet qualified for public trading, and has a very small number of shares, then you still have work to do to achieve all that with the proper paperwork and obtaining the necessary qualifications to become publicly traded as mentioned on my site.
*If you can find a way to outright control a shell company that has public shares, and you gain control through purchase of the company's public shares, then you may be paying a premium for the shell far beyond its actual worth - as many investors will hold out and will not sell right away, just to see how high the price will go up first. But the savings in time and paperwork may make this worthwhile. Since so few shares exist in many grey sheet stocks, you may actually need far more than 10% ownership to take control since the management own most of the shares. As well, the grey sheet company likely has private stock besides the public stock.
Rather than explain everything regarding this topic, I direct you to a couple sites that specialize in such transactions...
http://venturevest.com/shellsreversemerger.html
http://www.expressipo.com/faqs.html
Such specialist are in a far better position to advise you because they are already aware of many of the shells and their flaws and their good points.
Maybe you already viewed these sites. There are others you can view too by doing a web search.
All in all, if you can eliminate the negatives of acquiring a shell company, such as hidden debts and dealing with the shell management, or potential old lawsuits, buyout paying premium price for public shares, etc.... if the shell is clean, then you do well to acquire the shell and start work on your company far sooner.
Summary of Grey Sheet Trading
Grey sheet trading should be treated with the highest suspicion. Remember, Gray Sheets have the least regulation and very little history in general. They are not under any SEC disclosing requirements and are not advertised. Information is difficult to find if not impossible for such stocks, so determining the value, if any, is next to impossible. These stocks are highly illiquid.
I am not sure that a way exists to efficiently study such companies or the real value of shares - no bid and ask prices available. You could try calling the company and requesting information.
I stay away from the Grey Sheet Trading completely and do not follow them because far too much time-labor involved to find solid gray sheet stocks worth investing, and no guarantee I could even sell the shares.
Why take such risks when plenty of re-searchable quality penny stocks can be easily found on the OTCBB and Nasdaq?
Don't let online con-artists dupe you into investing in Gray Sheet stocks. Tooo risky!!!
This concludes this lesson on Grey Sheets Trading. When you are ready, please continue on to the next lesson.
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OTC Risks vs Rewards - How to Screen for Winners