Rules That Are To Be Adhered To While Dealing With Penny Stocks

The widespread understanding about penny stocks is that they are commons stocks bearing value less than five dollars for each share and are traded through quotation services over the counter or through pink sheets. To those who are new to the stock market, an investment in these stocks can be regarded a good option, provided the investor understands all the rules and related terms that are associated with these stocks.
Even though the definition offered by the Securities and Exchange Commission states that these stocks can be traded at NYSE or NASDAQ, but generally it is not done, as these stocks have very less chance of trading foreign exchanges. SEC grants these stocks $5.0 as the highest possible price for each share of these stocks.

The US Securities and Exchange Commission are, primarily, concerned with offering protection to the investors of penny stocks from scams, frauds or any kind of misappropriation. The commission makes sure that the markets are resourceful and just. The commission also helps in capital formation. The commission inspires more and more investors for getting advantage from the stock markets. It is one of the pillars to improve the economy of United States to result more strong opportunities for employment and better living standards for the common mass of the United States.

The role of the commission is not only to ensure proper protection for traders and investors but also to frame various rules and guidelines for the smooth working of stock exchanges. It lays down rules and regulations to be followed by the companies desirous for collecting money from the market and sternly looks into the monetary and other activities of these companies. It also assures that the investors are being carefully looked after, by the companies, as per the rules and regulations stated by it.

According to the rules laid down by SEC, a broker or dealer is needed to get the approval from the customer desiring a particular kind of transaction with penny stocks. The broker should obtain a request for the same in writing from the customer.

SEC states that a customer desirous of purchasing penny stocks should be offered with a document clearly stating the risk involved in the stock. The dealer or the broker should also let the customer know the current market rate of these stocks and the commission that is going to be charged by the broker.

SEC further says that a customer should be provided with a monthly statement of the account clearly displaying the current market rates of each stock held by the customer.

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