A lesson for Investors of Penny Stocks, Small Cap
and Micro cap Stocks.

This page is designed to provide the investor or trader, with general information about small cap stocks or penny stocks and the markets in which they are traded. Because there can be illegal activity involving small cap stocks, this page tries to caution investors about penny stocks be assured that illegal activities have been seen on all exchanges including the NYSE over the years but the majority of activity has taken place on the lesser requirements exchanges. Many small, reputable, legitimate companies issue stock that trades for pennies a share in the over the counter market or OTCBB and Pink Sheets Remember Microsoft ( MSFT ) was once a penny stock. The trick is to be able to spot the potential legitimate winners and the potential losers.
What are micro cap or penny stocks?

The terms “micro cap” stock and “penny stock” have been used to describe a particular segment of the securities market. As both terms suggest, these stocks are generally low-priced securities issued by small companies. A penny stock is generally a security that is priced at less than $5 per share and is not traded on Nasdaq or listed on a stock exchange. “Micro cap” stock generally describes a low market capitalization of less than 5 million when the number of shares is multiplied by the stocks price.

Under the federal securities laws, penny stock is defined generally as: an equity security that is not listed on Nasdaq or a national securities exchange and either (a) has a price per share that is less than $5 or (b) whose issuer has net tangible assets that are less than $2 million, if the issuer has been in continuous operation for at least three years; or a market capitalization less than $5 million, if the issuer has been in continuous operation for less than three years; or whose average revenues are less than $6 million for the last three years. See Section 3(a)(51) of the Securities Exchange Act of 1934, 15 U.S.C.  78c(a)(51), and Rule 3a51-1, 17 C.F.R.  240.3a51-1.

The plain fact is that today you can find stocks that sell for less than $5.00 on all exchanges including the NYSE. You can on most days find stocks that are trading for less than a dollar or for pennies on every exchange including the NYSE, NASDAQ.

When the Commission adopted the $5 threshold for penny stocks it cited three reasons: 1) the perceived difficulty of manipulating higher valued stocks; 2) the fact that $5/share was the threshold for the ULOR/SCOR — a uniform, streamlined state registration form for companies raising less than $1 million under the Rule 504 exception under Regulation D; and 3) the perception that legitimate small businesses could still raise capital and the liquidity for their shares would not be impaired.

The term “micro cap” is not a term defined under the federal securities laws. Lipper Analytical Services, a mutual fund rating organization, generally categorizes micro cap companies as companies with market capitalization’s of less than $300 million. In general, securities of micro cap companies are quoted on Nasdaq’s OTC Bulletin Board, in the National Quotation Bureau’s Pink Sheets and on the Nasdaq Small Cap Market.

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