This Week In Finance

"Ethics and Finance Redux: 'Bulletin Board' Stocks and the NASD"

A recent column by Jane Bryant Quinn focuses on attempts by the NASD (National Association of Securities Dealers) to upgrade financial reporting standards for the so-called "bulletin board" stocks (i.e., the approximately 6,700 stocks not otherwise listed elsewhere). Consider Ms. Quinn's take on the subject:

"The National Association of Securities Dealers (NASD) is cleaning out its garbage pit, otherwise known as the OTC Bulletin Board. . . For the first time, Bulletin Board stocks will have to live up to respectable financial-reporting standards. If they don't, they'll be thrown off."

Ms. Quinn goes on to suggest that, while many of the firms trading on the OTC Bulletin Board (which was started in 1990) are legitimate, many are not, which makes them "favorites of cheating Internet rumor sites and high-pressure crooks." Most surprising is her contention that, until now, these firms have not been required to file financial statements (and, apparently, many have not).

Consider the discussions you can start with this example. Does the EMH hold (even in the weak form) for these stocks? How should a rational investor value such a firm? Why have rational investors even considered trading these shares? What is the appropriate risk premium when financial information is sketchy (or nonexistent)?

A couple of other interesting points from the column. Of the first 270 firms to be scrutinized by the SEC, 172 (!) have chosen not to disclose their finances, and have been "thrown off" the Bulletin Board. And,if you want to find out who they are, go to www.otcbb.com. (I hope your retirement fund isn't invested in these . . . )

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