how is a penny stock created 
small companies and startups typically issue stock as a means of raising capital to grow the business although the process is lengthy issuing stock is often one of the quickest and most effective ways for a startup company to obtain capital a penny stock like any other publicly traded stock is created through a process called an initial public offering or ipo to be listed on the otcbb the company must first file a registration statement with the sec or file stating the offering qualifies for an exemption from registration it must also check state securities laws in the locations it plans to sell the stock once approved the company may begin the process of soliciting orders from investors finally the company can apply to have the stock listed on a larger exchange or it can trade on the over the counter market as with other new offerings the first step is hiring an underwriter usually an attorney or investment bank specializing in securities offerings the company s offering either needs to be registered with the sec according to regulation a of the securities act of 1933 or file under regulation d if exempt if the company is required to register form 1 a the registration statement must be filed with the sec along with the company s financial statements and proposed sales materials the financial statements need to remain available for the public to review and timely reports must be filed with the sec to maintain the public offering once approved by the sec orders for shares may be solicited from the public by accompanying sales materials and disclosures such as a prospectus after initial orders are collected and the stock is sold to investors a registered offering can begin trading in the secondary market by listing on an exchange like the nyse nasdaq or trade over the counter many penny stocks wind up trading via otc due to the strict requirements for listing on larger exchanges sometimes companies make an additional secondary market offering after the ipo which dilutes the existing shares but gives the company access to more investors and increased capital furthermore it is mandatory that the companies continue to publicly provide updated financial statements to keep investors informed and continue to be quoted on the over the counter bulletin board regulations for penny stockspenny stocks are considered highly speculative investments to protect investors the sec and financial industry regulatory authority finra have rules to regulate the trading of penny stocks all broker dealers must comply with section 15 h of the securities exchange act of 1934 and the accompanying rules to be eligible to handle penny stock transactions 3after hours tradingpenny stocks can be traded after hours and since many significant market movements can happen after exchanges close penny stocks are subject to volatile fluctuations after hours if penny stock investors execute buy or sell trades after hours they may be able to sell shares for very high prices or purchase shares for very low prices however even the best penny stocks are subject to low liquidity and inferior reporting also if a penny stock does spike after hours an investor looking to sell the stock might have a hard time finding a buyer penny stocks infrequently trade even more so after market hours which can make it difficult to buy and sell after hours 