When it comes to penny stocks, there are bunch of different opinions on how risky and speculative these securities are. For instance, penny stocks are much riskier than equities but daily returns are way bigger compared to traditional exchange stocks. However, what do we know about the history of penny stocks? Do they have a scant history though and where did they come from? Was Apple once a penny stock company? In this article, we’ll try to answer these questions and tell you a bit more about the history of the penny stock market.
A Brief History
You will be surprised but penny shares have been in play for as long as equity markets have been around. There were not exactly in the same form as today’s penny stocks but some offerings are dated back to the 1800s. Not much of an info can be found on these first IPOs but big companies of those times were selling their stocks for pennies.
One of the recent occasions bound up with penny stock market is of course the 1929 Crash and following financial crisis in the US. It was then when regulators had finally decided to toughen all market transactions especially those associated with penny stocks. As per official’s statement, speculative activities had caused the long-suffering financial crisis. Followed by this, in early 1930s SEC had brought control over penny stock market and defined penny stocks as securities traded under $5 (as we know them now in 2018). In addition, penny stocks were taken off of traditional markets.
The 20th century was relatively calm for the penny stock market as no modern means of communication existed back in there – hence no one knew about the trend. It was a classic bilateral agreement placed/ordered over the phone and the funny part was that investors had little info about the traded penny stocks due to limited information in newspapers. Despite this, penny stocks were an integral part of financial markets. Over the course of time, OTC markets have evolved into a completely new and full-fledged exchange and have created various tires to split up penny stocks into sub classes.
First subclass is concerned with the companies that issue financial reports (e.g. annual, quarter) which are publicly available to investors. As you may have guessed, lower sub classes are those with non-disclosed info so called ephemeral companies that don’t appear to have a real business but a ponzy scheme.
The first subclass companies usually have disclosure reports with SEC due to regulation norms. These companies trade as OTCBB (Over the Counter Bulletin Board) stocks. However, all these penny stock systems remained relatively unheard until the mid 1990s when the internet exploded around the globe and helped spread the word about penny stocks. This was the rise of a new era where modern technologies have deposed obsolete phone calls and stock market quotes in newspapers. Now, when the global internet has come by, trading is way faster and easier through online brokerages that help you buy or sell penny stocks.