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Top 6 Requirements for Pink Sheets Stocks to Upgrade to NASDAQ

Many investors are unclear on Pink Sheets Stocks requirements, and how they can upgrade into the NASDAQ. In order to be listed on NASDAQ, companies must meet stringent standards including being registered with the Securities and Exchange Commission (SEC), acquiring at least three market makers for their securities, and maintaining minimum assets, capital, shareholder and public shares requirements. Many companies elect to issue pink sheet penny stocks initially because the requirements to go from pink to NASDAQ are difficult or impossible to achieve during the first few years of operation.

Here are the top 6 requirements for Pink Sheet stocks to upgrade to a major stock exchange:

  1. Reporting requirement – In order to be listed on NASDAQ, companies that currently issue pink sheets must submit to stringent SEC oversight and reporting regulations. These reporting requirements offer investors a greater degree of confidence and serve as benchmarks for the company’s overall performance. These requirements are much more substantial than the listing requirements for pinks listings in the OTCBB (Over the Counter Bulletin Board).
  2. Market makers – Typically, NASDAQ market makers deal with established companies and offer proven stocks to their clients. Start-ups and companies in decline may have difficulty in finding market makers to satisfy the requirements to go from pink to NASDAQ.
  3. Assets – Companies that once offered stocks on NASDAQ may have the necessary asset levels, but may not be able or willing to provide the SEC documentation required for NASDAQ listings. Some companies de-list themselves from NASDAQ purposely.
  4. Capitalization – Pink sheet penny stocks typically do not meet the NASDAQ capitalization requirements. Some start-ups can achieve this within a few years, but for many companies this is a long and complex process.
  5. Shareholders – Maintaining the required number of shareholders can be difficult for start-ups with limited investment opportunities and for companies that have had difficulties in the marketplace in the past.
  6. Public shares – The percentage of public shares vs. preferred stock is an important element in determining whether a company meets the requirements for listing on NASDAQ. Liquidity of those shares can also be a factor; if no real market for the stocks exists, then companies typically cannot move from the pink sheets penny stock market to NASDAQ trading.

The pink penny stock market is more speculative than traditional securities venues and entails higher risk for investors. Pink sheet penny stocks are typically issued by companies that cannot currently meet the requirements to go from pink to NASDAQ; this includes start-ups and high-risk ventures. As a result, investment in the pink sheets penny stock market should be balanced with lower-risk investments on the regular stock and securities exchanges.

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