The term penny stock refers to securities that usually trade at over the counter market at less than $5 per share. Such stocks are mostly issued by smaller companies whose shares trade on OTC Markets or less frequently on OTC Bulletin Boar. Penny stock are also considered highly speculative, with small market capitalization, lacking liquidity and disclosures urging Congress to prohibit broker-dealers from effecting transactions in penny stocks unless they comply with the requirements of Section 15(h) of the Securities Exchange Act of 1934 also known as Penny Stock Rule. To comply with the requirements of Section 15(h) of Securities and Exchange Act broker-dealer must: approve the customer for the specific penny stock transaction and receive a written agreement to the transaction furnish the customer a disclosure document describing the risks of investing in penny stocks disclose to the customer the current market quotation, if any, for the penny stock disclose to the ...
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