A company that is listed on the Pink Sheets is called a pink sheet company. Pink Sheets is a centralized electronic system that collects and publishes bids and ask quotation prices for Over the Counter (OTC) securities. Pink Sheets is neither a NASD broker-dealer nor a stock exchange that is registered with the U.S. Securities and Exchange Commission. Hence, unlike premiere stock exchanges like NASDAQ and NYSE, where companies are required to fulfill the minimum listing requirements, pertaining to annual income, number of outstanding shares and market capitalization, to become eligible for trading on the exchange, a pink sheet company does have to fulfill any listing requirements to the trade on Pink Sheets.

There are two noteworthy reasons that compel a company to become a pink sheet company. Firstly, a company is unable to comply with the minimum listing requirements of NASDAQ or NYSE. By becoming a pink sheet company, the enterprise gets a chance to test the waters before venturing into larger stock exchanges. Secondly, due to severe financial constraints, a company fails to fulfill the minimum listing requirements for continued listing on major stock exchanges. Hence, it is delisted. Such a company finds a safe haven in the Pink Sheets, and becomes a pink sheet company. Generally, most of the pink sheet companies are extremely small, closely guarded or thinly traded.

If you wish to convert your corporation into a pink sheet company, then one of the first things that you would have to do is find a SEC registered market maker, who is a member of National Association of Securities Dealers (NASD). A market marker can opt for any one of the following three ways to get your company listed on the Pink Sheets.

1. Form 211- In compliance with SEC Rule 15c211, before publishing the proprietary quotes on the Pink Sheets, the market marker collects, evaluates and retains requisite information about the issuer. Thereafter, he submits form 211 together with two copies of requisite issuer information to the NASD OTC compliance unit for review. If the NASD OTC compliance unit is satisfied with the provided information, it will notify the market marker to enter the quotation on the Pink Sheets. The issuer would then contact the market marker for sponsorship of the security on the Pink Sheets.
2. Unsolicited Quote- It’s another popular method adopted by enterprises to become a pink sheet company. As the unsolicited quote merely represents the customer’s indication of interest, therefore, the need of submitting form 211 doesn’t arise. However, these unsolicited quotes are removed from the Pink Sheets once the customer’s orders are executed.
3. Immediate Listing- In this case, if the market maker qualifies for an exemption to Rule 15c211, then he can contact the Pink Sheets and request for immediate publication of the quotation. The exemption to Rule 15c211 becomes applicable under the following circumstances:

·         If at present the security is listed on NASDAQ or any other premiere stock exchange.

·         If the security is piggyback eligible. A piggyback security is one that has been quoted on the Pinks Sheets by at least one market maker for a minimum period of 30 days.

·         If the security has been quoted by the market maker for at least 30 days on OTCBB.

If a company, which has been delisted from a stock exchange like NYSE, wishes to become a pink sheet company, it would have to submit form 211 to the NASD OTC compliance unit to seek permission to trade on the Pink Sheets. However, if the security was quoted on the Pink Sheets on unpriced basis for a period of 30 days prior to the delisting of the company from the stock exchange, then it becomes a piggyback security on the same day on which the company is delisted, and any market marker can enter its quote on the Pink Sheets without filing the form 211. 

A company, which has been delisted from NASDAQ, can also become a pink sheet company with ease. All it has to do is adopt one of the following three methods.

• Submit form 211 to get permission from the NASD to enter quotation on the Pink Sheets.
• Enter quote on the Pink Sheets on unpriced basis 30 days prior to delisting, and become a piggyback security on the day of delisting.
• Become eligible for immediate listing on the Pink Sheets by being current in filing with the SEC, quoting the security continuously on NASDAQ for 30 days prior to delisting, and avoiding bankruptcy proceeding. 

A pink sheet company doesn’t have to pay a fee to trade on the Pink Sheets. Moreover, the Pink Sheets doesn’t define any minimum listing requirements that the company must meet to become eligible for listing. However, the issuer is expected to submit current financial information via form 211. This financial information need not be audited, but it should be prepared in accordance with GAAP.

The Pink Sheets is a potent as well as straightforward means for to obtain capital to finance manufacturing, marketing, research and development activities. In fact, extremely small or closely guarded companies prefer to become a pink sheet company mainly to take advantage of this aspect of the Pink Sheets.