This is the eighth "irregular" update of PGX since terminating its regular publication schedule. It's been quite a while since the last one. After receiving several questions about the new OTCBB rules and how they affect small cap investors, I felt it was time. However, PennyGold and PGOLD XPRESS usually focus on Canadian junior mining stocks. I'm not an expert on the OTCBB or American small caps. So I decided to ask the most knowledgeable people I know about this... the folks over at Pennaluna. They've prepared a wonderful "everything you wanted to know" report. Enjoy. :-) -Ken ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ PGOLD XPRESS UPDATE #008 ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ >"I get the facts...I study them patiently...I apply imagination." -- Bernard Baruch (1870-1965), legendary financier and adviser to U.S. presidents ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ October 21, 2000 ------------------ >-----UPDATES----- ------------------ PennyGold's waiting list continues to grow, with few people selling back their serial number. Sorry to those waiting. For those of you interested in e-commerce, our other site, sitesell.com, continues to grow nicely.... http://www.sitesell.com/ ------------------ >-----ARTICLE----- ------------------ ************************************************************ Pennaluna and Company is a NASD broker-dealer in Idaho that's traded U. S. and Canadian small cap stocks since 1926. With so many clients interested in Bulletin Board stocks, the firm has been fielding questions about the new OTCBB Eligibility Rule and how it will impact small cap investors. Here's a special report Pennaluna prepared to help answer those questions. Besides research and writing, background work included a trip to NASD headquarters in Washington D.C. and a meeting with the Director of the OTCBB. The firm has also launched a new online trading operation called PennTrade that specializes in Canadian, Pink Sheet and OTCBB trades. Trades are a flat $29.95, with every 10th trade free and no hidden charges for low price stocks. Learn more by visiting PennTrade at... http://www.penntrade.com ************************************************************ The New Eligibility Rule: Big Change for the Bulletin Board You may have run into the changes sweeping across the Over The Counter Bulletin Board. Maybe you wanted a quote, but the stock had vanished from the system. Or a trading symbol suddenly sprouted an extra letter "E", hanging off it like a new tail. Such oddities are sparked by an important new amendment to the Rules of the National Association of Securities Dealers (NASD), the body that operates the Bulletin Board through its Nasdaq Stock Market subsidiary. It's called the OTC Bulletin Board Eligibility Rule. Approved in January 1999 by the Securities and Exchange Commission (SEC),it was phased in over a period of a year and a half and became fully effective in late June. ----------- Major Shift The new Eligibility Rule marks a fundamental shift in Nasdaq policy and changes one of the important ground rules of the OTCBB. Basically, the rule says that a stock may no longer be quoted on the Bulletin Board unless the company is "fully reporting". In other words, the firm must provide audited financial statements and report current financial information periodically to the SEC, or to industry regulators in the case of banks and insurance companies -- and these reports must be filed on time. ------------- Off the Board If reports aren't filed when due, a short grace period is allowed. (At this point, the trading symbol gets that extra "E" to red flag the situation.) If the problem isn't corrected, then the stock is cut from the Bulletin Board -- which means it loses significant market exposure, and often value. The disqualified stock may drift into a "work out" market devoid of firm dealer quotes. Or it may move via special exemption onto the Pink Sheets, a smaller quotation medium that's been published for market makers for nearly a century. (The Pink Sheets, taking a cue from the Bulletin Board, are also undergoing major changes and moving online at http://www.pinksheets.com. In August, this new website began publishing free 15 minute delayed quotes on Pink Sheet stocks, and also some basic company data.) ----------------------- More Info for Investors The goal of the new Eligibility Rule is to give investors better and more timely information about companies whose stocks are quoted on the Bulletin Board -- often small, thinly capitalized firms whose uncertain futures offer speculative investors the possibility of either great reward or great disappointment. These stocks are generally low priced. Many are under $5 a share, some only pennies. Still, more than 900 Bulletin Board stocks are quoted above $5 a share as we write, and nearly 20 are over $200. Adena Friedman has served as Director of the OTCBB for the past three years. She manages a staff of about a dozen people at NASD headquarters in Washington D.C. An articulate woman with a MBA from Vanderbilt University, she recently met in her office with our editor, Tom Wobker. Friedman told him she believes the Eligibility Rule aids investors by providing added information about companies. "One of the goals we have for the Bulletin Board is to make more useful information available to investors, and I think the new rule is serving that purpose," she said. "The change gives them access to more information -- and more objective information -- than they had before. I think it gives them some degree of extra protection." ------------- Rising Volume The timing of this important change coincides with an upsurge in popularity of the Bulletin Board, which accounts for more than 90% of all U.S. over the counter trades. (An over the counter stock is one that's not listed or traded on Nasdaq or a national securities exchange.) As the great bull market of the last decade took off, so did trading on the OTCBB. In 1995, daily volume averaged about 41 million shares on fewer than 7,000 trades a day. For the first quarter of 2000, that average skyrocketed to over one billion shares on 200,000 trades a day. Director Friedman attributes much of the Bulletin Board's recent popularity to three factors that all converged at once. "We now have a great deal of media focus on the stock market, both on TV and in the press, so the public has been made more aware of the financial markets. Also there are free delayed quotes available in many places on the Internet, and there are Internet financial chat rooms that didn't exist before, and all these things probably lead to more investor interest," she says. ------------------ Stock Supply Drops One notable effect of the new rule is a sharp decline in the number of stocks quoted on the Bulletin Board. SEC reporting can be a relatively complex, slow and expensive process. It involves certified public accountants and often securities lawyers. Many stocks were dropped when firms either decided not to spend the time and money needed to report, or missed their phase-in deadline. Bulletin Board stocks declined from nearly 6,700 in June 1999 to around 3,700 in June 2000, as roughly 3,000 non-reporting companies fell away. (It's likely some are now working on filing paperwork or answering SEC comments and will eventually be quoted again.) Despite this reduction, investors seem hungry for the fully reporting stocks that remain. Total OTCBB trading volume for February 2000 rose to 24.2 billion shares -- over four times the February 1999 total. Volume crested at over 25 billion shares last March, before falling abruptly in April's sharp market correction to levels not seen since 1999, and then drifting lower during the summer trading doldrums. ------------------ More Growth Ahead? Corrections and pullbacks are to be expected, of course. But it seems likely that unless a strong bear market hits, the Bulletin Board will continue to attract growing numbers of aggressive investors well into the future. There are several reasons. Continued economic expansion, demographics that favor saving and investing, the popularity of financial news media, and greater interest in mini-and micro-cap stocks, all fuel the trend. Wider delivery of market data also plays a key role. The number of professional market data terminals that access OTCBB real-time quotes has now climbed to roughly 500,000 worldwide. In addition, the Internet today carries these quotes in delayed form to millions of individual home and office computers. Such exposure dramatically increases the potential size, breadth and liquidity of this marketplace. ------------------- Evolution Continues We can probably expect more changes down the road, since the Bulletin Board is relatively young and still evolving. Developed in 1990 as a pilot program for a computerized real time quotation medium, its goal was to improve market transparency and regulatory oversight by quickly disseminating quotations and sales information on over the counter stock trades. Before the Bulletin Board, such information was limited. Quotes were published only once a day on the old Pink Sheets and other market data was very hard to come by. So the OTCBB was a big step forward. Upgraded periodically from the outset, today it gives not only real time quotes but also last sale price and real time volume data -- made possible because every Bulletin Board trade is now reported within 90 seconds through an automated confirmation system. This gives investors, brokers, dealers and companies a much clearer picture of the current market. It also helps NASD Regulation -- the independent NASD subsidiary that regulates OTCBB market makers -- to keep a closer eye on trading activity. -------------- Useful Website One of the Bulletin Board's more useful innovations for investors is the website at... http://www.otcbb.com. The site publishes market statistics in a number of different categories, OTCBB news, investor information, FAQ's, and other data. Various trading activity reports are also available there for a nominal fee. The site continues to change and improve. Latest additions: free 15 minute delayed quotes on Bulletin Board stocks, including inside bid and ask prices, cumulative share volume for the current trading day, and other data. Director Friedman is upbeat about the growing usefulness of www.otcbb.com. Relying on her "right hand" -- product manager Liz Heese -- and skilled information technology support people, her aim is to keep improving the information investors find there. "We want to provide plenty of information for investors", says Friedman. "But we want to keep the site simple to use and not too cluttered." ------------ Bottom Line Besides the Eligibility Rule, other OTCBB changes are also underway. They include Nasdaq's new trade and quote halt authority, a proposed pilot program for limit order protection, a new minimum quotation size rule for high price stocks, and possible amendment to the Three Quote Rule to speed up trade executions. Just last week, Nasdaq asked the SEC to approve new rules intended to update reporting procedures, automating and speeding up the process to make it more like the system used by The Nasdaq Stock Market. But the Eligibility Rule, at least for the moment, promises to have the most dramatic and immediate impact on investors and the marketplace. While it's too soon to fully assess the results of the new change at this point, we believe the rule is already exerting a strong positive effect on the Bulletin Board. Despite the usual confusion and discomfort that initially accompany change, we expect that over time the Eligibility Rule will significantly enhance investor safety and confidence. It should lead to a more transparent, respected and important market for small company stocks. ************************************************************ Pennaluna and Company is a NASD broker-dealer in Idaho that's traded U. S. and Canadian small cap stocks since 1926. The firm has also launched a new online trading operation called PennTrade that specializes in Canadian, Pink Sheet and OTCBB trades. Trades are a flat $29.95, with every 10th trade free and no hidden charges for low price stocks. Learn more by visiting PennTrade at... http://www.penntrade.com ************************************************************ ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ >\\\\\\\\\\\\\\\\\\\\\\\\\\\\\/////////////////////////// PGOLD XPRESS BACK ISSUES "Thar's gold in them there back issues..." http://www.goodbytes.com/pennygold/pgoldxpress/ >\\\\\\\\\\\\\\\\\\\\\\\\\\\\\/////////////////////////// ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ > SUBSCRIBE/UNSUBSCRIBE If a friend forwarded you this e-mail, and if you would like to subscribe to PGOLD XPRESS (it's free), you can do so at this URL... >> http://www.goodbytes.com/pennygold/pgxprs1.html To unsubscribe, go to the following URL and enter your e-mail address. If you use more than one e-mail address, be sure to enter the same one that you used when you subscribed. >> http://www.goodbytes.com/pennygold/pgxprsunsubscribe.html ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ >>POSTSCRIPT DISCLAIMER As you know, I am NOT an investment adviser. Please do not take what I say as investment advice. YOU have to be the final judge in how to best use the information contained in this newsletter (or whether to use it at all). In the final analysis, we all have to be responsible for our own decisions. ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ Written by Ken Evoy, M.D., President of GoodBytes Information Products Inc. (c) copyright 2000 GoodBytes Information Products Inc. >>>This publication MAY be reproduced and transmitted to >>>others, as long as it has been copied in its entirety. ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~