CH 7A (3)

Question 1

What does the Penny Stock Reform Act of 1990 mandates? after this reform, what was created?

Answer 1

• Mandates the SEC to create a uniform electronic quotation system for OTC stocks
• OTCBB (OTC Bulletin Board)

Question 2

What is the OTCBB? and what does it links?and who regulates it?

Answer 2

• Electronic quotation system only. Doesn’t execute orders
• Links market Makers trading shares of small firms
• FINRA (Financial industry regulatory Authority)

Question 3

Who owns FINRA? and who regulates FINRA?

Answer 3

• It is a private firm that self-regulates member brokerages and exchanges
• The SEC

Question 4

Why is FINRA important?

Answer 4

• It provides oversight in regulation with security firms doing businesses with the public

Question 5

what was created in 1913? and what did it do?

Answer 5

• National Quotation Bureau (NQB)

- Traded small, high-risk firms often called pink sheets

Question 6

What is the current name for the pink sheets?

Answer 6

• OTC markets group inc.

Question 7

in 2007, what did the OTC market reorganize itself into 3 markets?

Answer 7

• OTCQX best market
• OTCQB venture market
• The Pink open Market

Question 8

What is OTCQX best market?

Answer 8

• 370 U.S and intl firms
• Biggest and best OTC firms
• Sponsorship by accredited third party investment bank

Question 9

What is OTCQB venture market?

Answer 9

• around 3,000 U.S and intl firms
• They are focused in entrepreneurial and growth firms
• It has no financial requirements

Question 10

What is the Pink Open market?

Answer 10

• Around 3,000 U.S and intl
• The original companies that were in the pinks sheets
• They have no financial requirements

Question 11

The pink market is divided into 3 segments based on what?

Answer 11

• Level of financial and accounting disclosures
• How current they are
• They are not concerned with the quality or riskiness

Question 12

What are the 3 segments of Pink Open?

Answer 12

• OTC Pink Current info
• OTC Pink Limited info
• OTC Pink No info

Question 13

What is OTC Pink Current info? They are likely to be…

Answer 13

• Firms provide regular quarterly and annual reports
• They are more likely to be:
  
  • Developing firms
  • Shell firms: few or nor operations
  • Firms may be legitimate or illegitimate

Question 14

What is OTC Pink Limited info?

Answer 14

• Firms filing quarterly or annual report within last 6 months (aren’t current)
• May have financial or insolvency problems
• May simply be unwilling to make disclosures

Question 15

What is OTC Pink No info?

Answer 15

• Firms haven’t submitted any info within last 6 months
• May have questionable dealings
• very risky

Question 16

What is Caveat Emptor and what kind of firms are they?

Answer 16

• It means let the buyer beware

- They are firms that have questionable business practices

Question 17

What did the OTC Market acquire? and what were some positives of this?

Answer 17

• the OTC market group acquired and Alternative trading system (ATS)
• Adds electronic trading ability
• Huge advantage over the OTCBB

Question 18

Who trades on OTC markets?

Answer 18

• Firms that don’t trade on NASDAQ or NYSE

Question 19

What are some characteristics of OTC markets (penny stocks)

Answer 19

• Low stock price
• Small firm stocks
• Few shares
• Minimal liquidity
• Low volume (possible manipulation)
• Little transparency

Question 20

What is a bull market?

Answer 20

• Involve rising prices in the stock market

Question 21

What is a bear market?

Answer 21

• Involve decreasing prices in the stock market

Question 22

Directional changes often due to assorted changes in:

Answer 22

• Economic activity
• Investor confidence
• Whats happening in the world

Question 23

What is routine decline?

Answer 23

• A drop of 5% or more in one of the major market indexes

Question 24

What is Correction?

Answer 24

• A drop of 10% or more in one of the major indexes

Question 25

What is a bear market?

Answer 25

• A drop of 20% or more in one of the major indexes

Question 26

What are the benefits of going global?

Answer 26

• New opportunities and diversification

Question 27

What is the name of firms that are listed on US exchanges?

Answer 27

• American Depositary Receipts (ADR’s)

Question 28

Is globalization good or bad?

Answer 28

• It depends is always the answer

Question 29

What is currency exchange risk?

Answer 29

• The risk that currency exchange fluctuations will reduce investment returns