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60-551: OTC Markets Group, Inc. (formerly known as National Quotation Bureau , Pink Sheets , and Pink OTC Markets ) is an American financial services corporation that operates a financial market providing price and liquidity information for almost 12,400 over-the-counter (OTC) securities. The group has its headquarters in New York City . OTC-traded securities are organized into three markets to inform investors of opportunities and risks: OTCQX , OTCQB and Pink . The company

120-675: A "shell" company as follows: Shell company: The term shell company means a registrant, other than an asset-backed issuer as defined in Item 1101(b) of Regulation AB (§ 229.1101(b) of this chapter), that has: (1) No or nominal operations; and (2) Either: (i) No or nominal assets; (ii) Assets consisting solely of cash and cash equivalents; or (iii) Assets consisting of any amount of cash and cash equivalents and nominal other assets.' Some shell companies may have previously had operations that shrank due to unfavorable market conditions or company mismanagement. A shell corporation may also arise when

180-485: A business, helps businesses raise money from other firms in the form of bonds (debt) or share capital (equity). The primary operations of commercial banks include: The United States is the largest commercial banking services location. New York City and London are the largest centers of investment banking services. NYC is dominated by U.S. domestic business, while in London international business and commerce make up

240-519: A certain country; e.g. Double Irish arrangement . A special purpose entity , used often in the context of a larger corporate structure, may be formed to achieve a specific goal, such as to create anonymity . According to a 2013 experimental study where the researchers requested anonymous incorporation in violation of international law, one in four corporate service providers offered to provide services in violation of international law. Shell companies can be used to transfer assets of one company into

300-424: A company's operations have been wound up, for example following a takeover, but the "shell" of the original company continues to exist. The term "shell corporation" does not describe the purpose of a corporate entity, but in general is more informative to classify an entity according to its role in a particular corporate structure; e.g. holding company , general partner , or a limited partner . Shell companies are

360-594: A main component of the underground economy , especially those based in tax havens . They may also be known as international business companies , personal investment companies , front companies , or " mailbox " companies . While these terms are generally used interchangeably in practice, their meanings are not the same and each term is generated to refer to a different theme of illegality. Shell companies can also be used for tax avoidance. A classic tax avoidance operation may utilize favorable transfer pricing among multiple corporate entities to lower tax liability in

420-592: A network of 89 broker-dealers price and trade a wide spectrum of securities on the OTC Markets platform. To be quoted on the platform, companies are not required to file with the SEC , although many choose to do so. A wide range of companies are quoted on OTC Markets, including firmly established foreign firms, mostly through American depositary receipts (ADRs). In addition, many closely held, extremely small and thinly traded U.S. companies have their primary trading on

480-559: A new company without having the liabilities of the former company. For example, when Sega Sammy Holdings purchased the bankrupt Index Corporation in June 2013, they formed a shell company in September 2013, called Sega Dream Corporation, into which were transferred valuable assets of the old company, including the Atlus brand and Index Corporation's intellectual property . This meant that

540-595: A provision in the William M. (Mac) Thornberry National Defense Authorization Act for Fiscal Year 2021 . A "Task Force On Shell Corporations" was constituted in 2017 under the chairmanship of the Revenue Secretary to the Government Of India and Corporate Affairs Secretary to Govt. Of India, for effectively tackling malpractice by shell companies in a comprehensive manner. On 22 December 2021,

600-551: A public register in order to prevent anonymous use of shell companies. The new customer due diligence (CDD) rule from 2016 forces banks to know the names of their customers in order to reveal them to law enforcement agencies upon request. Thereby, anonymous misuse of shell companies shall be prevented. The rule is administered by the Financial Crimes Enforcement Network (FinCEN). In January 2021 anonymous shell companies were effectively banned via

660-408: A qualitative review by OTC Markets Group. Companies are not required to be registered with or reporting to the SEC, but they must post financial information with OTC Markets Group. In addition, U.S. companies must be ongoing operations (i.e., no shells ) and may not be in bankruptcy, while foreign issuers must meet the requirements of qualified foreign exchanges. Additional oversight of OTCQX securities

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720-414: A salary (or fees, consulting fees, etc.) from the company's profits. In addition, there are several shell companies that are used by broadcasting groups to circumvent FCC limits on television station ownership. For example, Sinclair Broadcasting Group forms local marketing agreements with stations owned by Cunningham Broadcasting and Deerfield Media ; nearly all of the stock of Cunningham Broadcasting

780-530: A significant portion of investment banking activity. FX or Foreign exchange services are provided by many banks and specialists foreign exchange brokers around the world. Foreign exchange services include: London handled 36.7% of global currency transactions in 2009 – an average daily turnover of US$ 1.85 trillion – with more US dollars traded in London than New York, and more Euros traded than in every other city in Europe combined. New York City

840-629: A spam campaign, any stock that is not in the Current Information category will also have its quotes blocked on otcmarkets.com. The SEC requires broker-dealers to comply with Exchange Act Rule 15c2-11 before displaying quotes on OTC securities, and requires submission of Form 211 to the FINRA OTC Compliance Unit. In 2019, amendments were proposed to 15c2-11, which had not been significantly amended since 1991. FINRA Rule 6500 contains rules on quoting OTC securities on

900-508: A specific goal such as anonymity . Anonymity, in the context of shell companies, relates to anonymity of beneficial owners of the company. Anonymity may be sought to shield personal assets from others, such as a spouse when a marriage is breaking down, from creditors, or from government authorities. Shell companies' legitimate business purposes are, for example, acting as trustee for a trust, and not engaging in any other activity on their own account. This structure creates limited liability for

960-519: A tax haven, where it is described as an offshore company. The shell company would purchase the products in its name, mark up the products and sell them on to the US company, thereby transferring the profit to the tax haven. (The products may never actually physically pass through that tax haven, and be shipped directly to the US company.) As the shell company is not based in the United States, its profit

1020-580: A variety of reasons. Some smaller financial centres, such as Bermuda , Luxembourg , and the Cayman Islands , lack sufficient size for a domestic financial services sector and have developed a role providing services to non-residents as offshore financial centres . The increasing competitiveness of financial services has meant that some countries, such as Japan, which were once self-sufficient, have increasingly imported financial services. The leading financial exporter, in terms of exports less imports,

1080-402: Is a company or corporation with no significant assets or operations often formed to obtain financing before beginning business. Shell companies were primarily vehicles for lawfully hiding the identity of their beneficial owners, and this is still the defining feature of shell companies due to the loopholes in the global corporate transparency initiatives. It may hold passive investments or be

1140-729: Is also called OTOTC or Other OTC. As of October 18, 2023, there were 1,426 securities in the grey market. The Compliance Analytics Product creates a security specific risk score for all OTCQX, OTCQB, Pink and Grey securities. Risk is assessed over 19 parameters including caveat emptor, shell status, penny stock status, price/volume changes and stock promotion data. Recently, the product integrated "Hot Sector" information about cannabis, cryptocurrency and blockchain. The Promotion Data Product provides market professionals and investors with active and historical promotion data for OTCQX, OTCQB, Pink and Grey securities. The company calculates and licenses indices of securities that trade on one of

1200-797: Is an annual fee for the OTCQB market of $ 12,000 per year and a one-time $ 2,500 application fee. As of October 18, 2023, 1,216 securities were available for trading on the OTCQB exchange. As of November 2018, the OTCQX Market has Blue Sky status in 33 states and the OTCQB Market in 30 states. Blue sky laws are state regulations established as safeguards for investors against securities fraud. The laws, which may vary by state, typically require sellers of new issues to register their offerings and provide financial details. This allows investors to base their judgments on verifiable information. Since

1260-618: Is controlled by trusts in the name of the owner's children. Other examples include Nexstar Media Group controlling television stations owned by Mission Broadcasting and Vaughan Media . Typical countries of domicile of shell companies are offshore financial centres like Ireland , Liechtenstein , Luxembourg , Switzerland , Isle of Man , and the Channel Islands including Guernsey and Jersey in Europe, Bahamas , Barbados , Bermuda , Cayman Islands , and Virgin Islands in

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1320-514: Is more information about a company's ownership structure, professional advisors and service providers. This certification will be required for any security newly qualified to be publicly quoted by a broker-dealer under SEC Rule 15c2-11, or when a Pink traded company becomes a current SEC reporting company, beginning May 1, 2014. International Reporting companies are also allowed to upgrade from Pink to OTCQB if they publish their 12g3-2(b) compliant disclosure online and verify their company profile. There

1380-399: Is not subject to US income tax, and as it is an offshore company in the tax haven jurisdiction, it is not taxed there either. Under the tax haven law, the profits are deemed not to have been made in the jurisdiction, with the sale deemed to have taken place in the United States. As US personal income tax is significantly less important than corporate income tax, US company executives would claim

1440-496: Is provided by requiring every issuer to be sponsored by approved third-party investment banks or law firms , called OTCQX Sponsors. As of October 18, 2023, 658 securities were available for trading on the OTCQX exchange, 478 of these being international companies and 180 of these being U.S. companies. The OTCQB market contains a one penny ($ 0.01) bid price requirement "intended to remove companies that are most likely to be

1500-843: Is the United Kingdom , which had $ 95 billion of financial exports in 2014. The UK's position is helped by both unique institutions (such as Lloyd's of London for insurance, the Baltic Exchange for shipping etc.) and an environment that attracts foreign firms; many international corporations have global or regional headquarters in the London and are listed on the London Stock Exchange , and many banks and other financial institutions operate there or in Edinburgh . Shell corporation A shell corporation

1560-600: Is the largest center of investment services, followed by London. The United States, followed by Japan and the United Kingdom are the largest insurance markets in the world. A financial export is a financial service provided by a domestic firm (regardless of ownership) to a foreign firm or individual. While financial services such as banking, insurance, and investment management are often seen as domestic services, an increasing proportion of financial services are now being handled abroad, in other financial centres , for

1620-408: Is traditionally among those to receive government support in times of widespread economic crisis. Such bailouts, however, enjoy less public support than those for other industries. A commercial bank is what is commonly referred to as simply a bank. The term " commercial " is used to distinguish it from an investment bank , a type of financial services entity which instead of lending money directly to

1680-635: The International Consortium of Investigative Journalists published a report called "Offshore Leaks" with information about the use and owners of 130,000 shell companies. Many of the shell companies belonged to politicians and celebrities from around the world and were being used for tax evasion and hiding financial assets. In 2016 a leak of 11.5 million documents to the German newspaper Süddeutsche Zeitung revealed information about owners of more than 214,000 shell companies administered by

1740-534: The United States partly as a result of the Gramm–Leach–Bliley Act of the late 1990s, which enabled different types of companies operating in the U.S. financial services industry at that time to merge. Companies usually have two distinct approaches to this new type of business. One approach would be a bank that simply buys an insurance company or an investment bank , keeps the original brands of

1800-789: The Caribbean, Panama in Central America, and Hong Kong and Singapore in Asia. Shell companies are usually offered by law firms based in those countries. The process of establishing a shell company can sometimes be done very quickly online. In 2021 anonymous corporations were made illegal in the United States with the passage of the Corporate Transparency Act as part of the William M. (Mac) Thornberry National Defense Authorization Act for Fiscal Year 2021 . Exemptions were included which are meant to limit its scope to

1860-524: The OTC Markets platform. Many foreign issuers adhere to the listing requirements of qualified foreign stock exchanges and make their home country disclosure available in English. There are also a significant number of U.S.-based issuers who are current in their reporting to regulators such as the U.S. Securities and Exchange Commission (SEC) or make available ongoing quarterly and audited annual financial reports through OTC Markets Group. Many companies in

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1920-462: The OTCBB, but the OTCBB has diminished in importance and by 2016 less than 2% of OTC trades occurred on the OTCBB, as opposed to OTC Markets. In 2014, FINRA proposed to remove Rule 6500 and eliminate the OTCBB, but withdrew the rule and in 2016 proposed to update the OTCBB to provide a backup system in case quotation is disrupted or nonexistent. Other FINRA rules such as Rule 6432 and Rule 5250 relate to

1980-606: The OTCQX and OTCQB therefore are of Status to meet or exceed the Blue Sky standards of the respective states. Pink is an open market that has low financial standards or reporting requirements. The stock of companies in the Pink tier are not required to be registered with the SEC. Companies in this category are further categorized by the level and timeliness of information they provide to investors and may have current or limited public disclosure. These were both glamorized and denigrated in

2040-532: The Pink market tier of the OTC categorization system do not meet the United States' listing requirements for trading on a stock exchange such as the New York Stock Exchange or NASDAQ . Many of these issuers do not file periodic reports or make available audited financial statements , making it very difficult for investors to find reliable, unbiased information about those companies. For these reasons

2100-620: The SEC Rule 15c2-11; for example, Rule 5250 prohibits market makers from receiving compensation from issuers. Many of the stocks traded OTC are microcap stocks , also known as penny stocks , which are known for fraudulent microcap stock fraud and penny stock scams . After the passage of Sarbanes-Oxley Act in 2002, some companies delisted and became OTC to save costs and avoid certain regulations, although OTC companies have faced pressure to improve disclosure. The OTC Bulletin Board (OTCBB)

2160-441: The SEC for the purpose of determining the public market price when registering securities for resale with the SEC in equity line financings. OTC Markets Group can facilitate electronic trading with its SEC-registered Alternative Trading System known as OTC Link ATS. The OTCQX market includes both multinational companies seeking access to U.S. investors, and domestic growth companies. To be traded on this tier, companies must undergo

2220-500: The SEC recognized OTCQX and OTCQB as established public markets, OTC Markets Group has worked collaboratively with state regulators since the 2014 JOBS ACT to apprise them of the easily accessible, free, public online disclosure of current information provided by companies traded on the OTCQX and OTCQB premium markets. As of April 2018, 60% of the 50 states now acknowledge the OTCQX Market for the purposes of secondary trading exemptions. The investor protection and quality control standards of

2280-540: The SEC views many of the lower-tier companies traded on OTC Markets as "among the most risky investments " and advises potential investors to heavily research the companies in which they plan to invest. Securities trading on the OTCQB and higher-tiered OTCQX trading marketplaces have status of Blue Sky secondary trading exemptions in 33 states and brokers may recommend such securities to their clients like securities listed on national stock exchanges. OTC Markets Group designates securities in one of three markets to indicate

2340-416: The United States, shell companies are often set up in states such as Delaware , Nevada , and Wyoming due to advantageous tax regimes. Shell companies have been used to commit fraud, by creating an empty shell company with a name similar to existing real companies, then running up the price of the empty shell and suddenly selling it ( pump and dump ). There are also shell companies that were created for

2400-546: The acquired firm, and adds the acquisition to its holding company simply to diversify its earnings . Outside the U.S. (e.g. Japan ), non-financial services companies are permitted within the holding company. In this scenario, each company still looks independent and has its own customers, etc. In the other style, a bank would simply create its own insurance division or brokerage division and attempt to sell those products to its own existing customers, with incentives for combining all things with one company. The financial sector

2460-563: The entities most likely to be used for illicit purposes. Companies which are exempt from the act include foreign companies that do not formally register to do business and companies that fall into one of 24 enumerated categories, which include companies that employ more than 20 people, have revenues above $ 5 million, and a physical presence in the United States, as well as churches, charities, non-profits, trusts and partnerships. Companies that are banks, broker-dealers, public issuers, and insurance companies are also exempt. Due to federalism in

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2520-489: The film The Wolf of Wall Street . Companies submitting regular Quarterly and Annual Reports go into the Current category. This category can still include shell companies or development stage companies with little or no operations as well as companies without audited financial statements . Companies in this category must not only have Quarterly reports duly posted every three months, but most have Annual reports for at least

2580-774: The finance industry remains an ongoing controversy in many industrialized Western economies, as seen in the American Occupy Wall Street civil protest movement of 2011. Styles of financial institution include credit union , bank , savings and loan association , trust company , building society , brokerage firm , payment processor , many types of broker , and some government-sponsored enterprise . Financial services include accountancy , investment banking , investment management , and personal asset management . Financial products include insurance , credit cards , mortgage loans , and pension funds . The term "financial services" became more prevalent in

2640-469: The law firm Mossack Fonseca in Panama. The shell companies were used by politicians, businessmen, autocrats, and terrorists from around the world for tax evasion and other illegal activities. After India's decision to demonetise ₹500 and ₹1000 rupee notes on 8 November 2016, various authorities noticed a surge in shell companies depositing cash in banks, possibly in an attempt to hide the real owner of

2700-747: The level of financial and corporate disclosure provided by the companies using its quotation system. Apart from the OTCQX market, which has rules that include financial requirements, the designations do not signify issuer quality or merit of any security. Designation is based on the level and timeliness of a company's disclosure and OTCQB and any of the Pink categories can include both high quality as well as speculative, distressed, or questionable companies. Strict promotion policies have been enacted to flag these companies and deny their application for trading if they engage actively in campaigns marked by misleading information or manipulative promotions. The OTCQX and OTCQB markets are considered 'Established Public Markets' by

2760-460: The liabilities of the old company were left in the old company, and Sega Dream had clean title to all the assets of the old company. The former Index Corporation was then dissolved . Sega Dream Corporation was renamed as Index Corporation in November 2013. When Hilco purchased HMV Canada , they used a shell company by the name of Huk 10 Ltd. in order to secure funds and minimize liability. HMV

2820-449: The needs of automated broker-dealers. The OTCBB was shut down on November 8, 2021. Securities that are not listed on any stock exchange nor formally quoted on OTC Markets or OTCBB are considered to be in the grey market . Unsolicited transactions are processed independently and not centrally listed or quoted. Trades are reported to a self-regulatory organization (SRO), which then passes the data on to market data companies. The grey market

2880-870: The preceding two years on file. As of October 18, 2023, there were 6,705 securities under Pink Current. Companies that have submitted information no older than six months to the OTC Markets data and news service or have made a filing on the SEC's EDGAR system in the previous six months are rated as having limited information. Companies that are unwilling or unable to meet OTC Markets' Guidelines for Providing Adequate Current Information with Quarterly and Annual Reports every three months, but which still submit information at least every six months, are in this category. These are often companies with financial reporting problems, economic distress, or in bankruptcy . As of October 18, 2023, there were 3,684 securities under Pink Limited. This market indicates companies that are unwilling or unable to provide disclosure to

2940-536: The public markets. Companies in this category do not make current information available via OTC Markets disclosure and news service, or if they do, the available information is older than six months. This category includes defunct companies that have ceased operations as well as "dark" companies with questionable management and market disclosure practices. Securities of publicly traded companies that are not willing to provide information to investors are considered highly risky. Quotations for stocks in this tier are hidden from

3000-582: The public. This tier was formerly known as the Pink No Information tier. As of October 18, 2023, there were 3,342 securities in the Expert Market. There is a public interest concern associated with the company designated as "Caveat Emptor" (Latin for "buyer beware"). This may include a spam campaign, stock promotion or known investigation of fraudulent activity committed by the company or through inside information . During

3060-470: The purpose of owning assets (including tangibles, such as a real estate for property development, and intangibles, such as royalties or copyrights ) and receiving income. The reasons behind creating such a shell company may include protection against litigation and/or tax benefits (some expenses that would not be deductible for an individual may be deductible for a corporation). Sometimes, shell companies are used for tax evasion or tax avoidance . In 2013

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3120-551: The registered owner of assets, such as intellectual property , or ships. Shell companies may be registered to the address of a company that provides a service setting up shell companies, and which may act as the agent for receipt of legal correspondence (such as an accountant or lawyer). The company may serve as a vehicle for business transactions without itself having any significant assets or operations. Shell companies are used for legitimate purposes but can be used for tax evasion , tax avoidance , money laundering , or to achieve

3180-439: The size of cubicles. Since shell companies are very often abused for various illegal purposes, regulation of shell companies is becoming more important to prevent such illegal activities. Currently British overseas territories and crown dependencies are only required to tell the true name of owners of shell companies upon request from official law enforcement agencies. However, since 2020 they are forced to publish these names in

3240-422: The subject of dilutive stock fraud schemes and promotions". Each company verifies via an annual OTCQB Certification, signed by the company CEO or CFO, that their company information is current, including information about a company's reporting status, company profile, information on management and boards, major shareholders, law firms , transfer agents , and IR / PR firms. Investor confidence improves when there

3300-533: The top two market tiers, including the OTCM QX ADR 30 Index of OTCQX-traded American depository receipts Financial services The finance industry in its most common sense concerns commercial banks that provide market liquidity , risk instruments , and brokerage for large public companies and multinational corporations at a macroeconomic scale that impacts domestic politics and foreign relations . The extragovernmental power and scale of

3360-640: The trustee. A corporate shell can also be formed around a partnership to create limited liability for the partners, and other business ventures, or to immunize one part of a business from the risks of another part. Shell companies can be used to transfer assets from one company into a new one while leaving the liabilities in the former company. Shell companies are also used for privacy and security reasons by wealthy individuals and celebrities. Accordingly, shell companies may be used to generate both pecuniary and non- pecuniary private benefits by their beneficial owners. The U.S. Securities and Exchange Commission defines

3420-563: The wealth. In response, in July 2017, the authorities ordered nearly 2,000 shell companies to be shut down while Securities and Exchange Board of India (SEBI) imposed trading restrictions on 162 listed entities as shell companies. A high-level task force found that hundreds of shell companies were registered in a few buildings in Kolkata . Many of those were found to be locked, with their padlocks coated in dust and many others which had office space

3480-778: Was first established in 1913 as the National Quotation Bureau (NQB). For decades, the NQB reported quotations for both stocks and bonds, publishing the quotations in the paper-based Pink Sheets and Yellow Sheets respectively. The publications were named for the color of paper on which they were printed. NQB was owned by CCH from 1963 to 1993. In September 1999, the NQB introduced the real-time Electronic Quotation Service. The National Quotation Bureau changed its name to Pink Sheets LLC in 2000 and subsequently to Pink OTC Markets in 2008. The company eventually changed to its current name, OTC Markets Group , in 2010. Currently,

3540-464: Was only a listing of securities that are also traded "over the counter" similar to the OTC Markets. The OTCBB has diminished in importance, with very little activity, but was previously retained as possible last resort system in case of disruption. OTCBB companies were required to file timely reports to a U.S. regulatory agency. Almost all OTCBB companies are now quoted via OTC Markets' OTC Link ATS because its fully electronic trading platform better meets

3600-427: Was then sued by Huk 10 Ltd., allowing Hilco to regain assets and dispose of HMV Canada. As another example, the use of a shell company in a tax haven makes it possible to move profits to that shell company, in a strategy of tax evasion . A United States company buying products from overseas would have to pay US taxes on the profits, but to avoid this, it may buy the products through a non-resident shell company based in

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