Where Do Penny Stocks Trade?

Which are the best and worst penny stock stock exchanges?

NYSE
NYSE American Flag. Getty Images

There are several different exchanges where a penny stock may trade. However, not all of these markets are created equal.  There are differences in terms of annual listing fees, investor visibility requirements, minimum price per share, reporting regulations, and even prestige.

The end result is that lower-quality companies tend to gravitate to markets where gaining a listing is not as difficult, making some exchanges saturated with weaker or less-compelling investments.

 On the other end of the spectrum, the costly, higher visibility markets delist (kick off) companies from time to time if they are not holding up their requirements.

We will start with stock exchanges which are well-known and highly regarded.  Getting listed on them involves passing numerous tests, from company size to the total number of unique shareholders.  Initial and ongoing listing fees are significant, as are the stock's responsibilities, such as how they report financial data about their operations.  

Keep in mind that Initial Listing Requirements are often relaxed once a stock joins the exchange, so for example the minimum share price to GET listed is not the same as the minimum share price to REMAIN on the exchange.

There are also stronger investor visibility requirements on the best markets.  For example, companies listed on the leading exchanges have a contractual requirement to provide an investor relations contact, to whom shareholders (or potential shareholders) may speak regarding the business or the stock.

 The underlying company is also obligated to report their quarterly and annual financial results publicly.

Penny stocks listed on the top exchanges are sometimes at risk of being dropped from the market, if their share price, total unique investor count, or timely financial reporting, falls below required levels.

 Typically, if a stock is "delisted," it will then begin trading at a lower-level exchange, where they can more easily meet the standards expected of them.  

For example, a penny stock kicked off the NASDAQ will almost certainly begin trading on the Bulletin Board exchange, which has much less visibility, but gains the positives of diminished costs and duties.  Usually, a delisting is a negative sign for a stock, and will put downward pressure on the share price upon public announcement and through the transition process.  As well, it can be a sign of a business that is shrinking or having difficulties.

New York Stock Exchange (NYSE)

You may not expect many "penny stocks" to trade on the same market as Exxon, IBM, and Walmart.  However, remembering that the official Securities and Exchange Commission (S.E.C.) penny stock definition is $5 or less, there are about 173 when using a standard stock screener.  Of course, this number fluctuates by the second when the market is open, due to changing share prices.

The majority of these NYSE penny stocks trade for $3 to $5, but there are several at lower price points.

The NYSE is the world's most recognized, largest stock exchange.  They claim  to hold 88% more liquidity than the next largest exchanges.

 This fact goes hand-in-hand with the greatest requirements and costs to gain and maintain a listing.  Typically, penny stocks on the New York exchange trading for $3 or $4 are in pretty reliable shape, whereas shares at 24, 43, or 93 cents may be in trouble (operationally, and in terms of delisting).

The American Stock Exchange (AMEX)

There are plenty of penny stocks trading on the AMEX, which is owned and operated by the NYSE.  Many of the companies on the AMEX were not appropriate or able to attain a NYSE listing.  As well, the American Stock Exchange is partially focused on specific industries, such as mining, oil and gas, and industrial machinery, although businesses of all types call the AMEX home.

 

The AMEX is a fine exchange for penny stocks, if you are invested in great-quality companies, but like the NYSE and NASDAQ, the choices are limited, and many of those shares trading at lower price points are on their way down, not up.

NASDAQ

Much like the AMEX is more widely recognized for their resource-related listings, the NASDAQ is more closely associated with technology companies, although you will still find businesses of all kinds.

There are about 629 companies trading on the NASDAQ below $5 per share, but this may change by the minute.  Of the companies listed here, they are typically very high-quality, with solid financial positions and excellent investor visibility.  An added bonus is that any companies delisted here will easily (and almost automatically) move to the Bulletin Board exchange, which the NASDAQ owns.

Bulletin Board (OTC-BB)

The Bulletin Board is the single best market to find great penny stock investments.  Owned and operated by the NASDAQ, they preserved many of the best aspects of an upper-scale listing (reporting requirements, investor visibility) while relaxing some of the tougher ones for the businesses (listing fees, minimum share price requirements).

There will always be low-quality investments on any exchange, but the Bulletin Board has many excellent penny stock companies which are set to grow, and have many aspects of their business going for them (management team, market share, financial ratios, intellectual property, etc...).

The name causes significant confusion - technically it is, "Over the Counter Bulletin Board" (OTC-BB),and anyone who has followed me knows that I am strongly against Over-The-Counter (OTC) shares.  You will see exactly why below, but do not confuse them with the great companies trading on the excellent Bulletin Board (OTC-BB) exchange.

Over-the-Counter (OTC)

OTC includes shares which list on the Pink Sheets, OTCQX, and OTCQB.  Such stocks are actually not on any exchange, but rather are bought and sold on a digital "marketplace."  These shares are traded between broker-dealers, and directly from broker-dealers to individual investors.

Unlike share prices established on a proper stock exchange, based on supply and demand trading, the cost of an OTC stock is arbitrary, typically dictated by the dealer (not unlike a used car).  Often the market to trade OTC shares is so thin that shareholders can not sell the investment easily, even when they have increased in price!

I have often warned that even your niece's lemonade stand can get listed on the Pink Sheets.  Unless it changes, to be publicly traded on this OTC marketplace involves one single application, "Form 211."  Beyond this, there are no listing requirements whatsoever.

This low-friction access to the stock market has resulted in two things:

  • 9,863 companies trade OTC 
  • Low-quality companies have saturated the OTC

Very few OTC companies, in decades of involvement in the penny stock world, have passed our analysis.  The vast majority should be considered low-quality or outright dangerous investments.

International Markets (TSX, European, Asian, South American, etc...)

Penny stocks originated in Vancouver, Canada.  The Toronto Stock Exchange (TSX) and Toronto Venture Exchange (TSX-V) are both high-level, and well-regulated, and have been from the very beginning.  However, the majority of shares listed are mining companies of questionable quality.  Nevertheless, many of the technology, healthcare, and select mining companies are excellent investments, and the TSX is filled with penny stocks by the hundreds for interested investors.

As for other markets worldwide, they each have their own rules and regulations, and investors will need to decide for themselves if they will be involved with them.

 

Hopefully you understand the statement that, "not all exchanges are created equal."  By investing in OTC penny stocks, you are walking through a minefield while wearing snowshoes.  By buying companies trading for pennies on the larger markets, you face the threat of delistings.  By focusing your penny stock aspirations to the Bulletin Board and some higher-priced shares on the NYSE, AMEX, and NASDAQ, you are giving yourself the best odds of success.