So, what is a Penny Stock?
There are several ways one can define it, but there are actually rules that define a penny stock for the brokerage and investment firms that might do business related to them.
When I first started trading, these rules were commonly referred to as the 15-g Rules, getting their name from the section in the “SEC Rulebook” in which they were defined. This definition came alongside a bunch of other requirements and measures that a firm would need to take before they could get involved in transactions for these securities, whether for their customers and clients or on their own behalf.
These rules were established in – and are the result of a series of ammendments to – the Securities Exchange Act of 1934. That might seem like a long time ago, but when you realize how little human behavior has changed in terms of the lengths to which people will go when MONEY is their goal… it makes a lot of sense.
The current SEC definition of a Penny Stock can be found through this link.
These rules were established and ammended with the intent to address problems. What problems???