Yellow sheets are bulletins designed for bond traders, providing crucial data on corporate bonds listed on the over-the-counter (OTC) market. These sheets contain comprehensive information on each bond’s yield, volume, highs, lows, closing, and bid-ask spreads.
Yellow sheets are currently published by the OTC Markets Group, previously known as the National Quotation Bureau (NQB). Their purpose is similar to that of the pink sheets, which incidentally cover stocks traded over the counter. Since 1999, both bulletins have been made available electronically in real time.
- Yellow sheets inform traders about corporate bonds available from brokerages as OTC trades.
- Pink sheets serve the equivalent purpose for stocks traded over-the-counter.
- Both services are now electronic, facilitated by OTC Markets Group.
- These lists cover securities from companies that aren’t listed on major public exchanges.
Understanding Yellow Sheets
Yellow sheets detail bonds from companies not listed on national exchanges. These could be small or lesser-known entities, or businesses still in the initial phases of growth. Many do not fulfill listing requirements for public exchanges.
The OTC market is a decentralized trading system for securities, where dealers don’t operate from a singular physical location or a centralized market. Yellow sheets include contact information for brokerages that maintain a market for these bonds.
Bonds featuring in yellow sheets are traded by market makers through a closed network accessible in hard copy or online by subscribers. If a subscriber wishes to purchase a particular bond, they can reach out to the appropriate brokerage using the contact details provided.
Yellow-Sheet Bonds
Bonds found in yellow sheets are generally considered more speculative than other fixed-income securities. Companies issuing these bonds aren’t listed on any public U.S. stock exchange, thus not subject to stringent government regulation and public disclosure requirements that listed companies must uphold.
Numerous established foreign companies use OTC markets for U.S. listings, occasionally in the form of American Depositary Receipts (ADRs).
The bid-ask spread for yellow sheet bonds is wider, compensating investors for the increased risks associated with such instruments. The main hazard is the company’s potential failure and bond default. Additional liquidity risks exist too, as there may be limited or no market for the bond if an investor decides to sell.
The Evolution from National Quotation Bureau to OTC Markets Group
Initially created in 1913, the National Quotation Bureau aimed to furnish investors with essential details regarding OTC stocks and bonds. Over time, it became renowned for publishing information on different colored paper—hence ‘yellow sheets’ for bonds and ‘pink sheets’ for stocks.
In 1963, the NQB was sold to Commerce Clearing House. By 1999, the NQB transitioned from traditional paper bulletins to an electronic operation. Eventually, they assumed the name OTC Markets Group.
Related Terms: pink sheets, over-the-counter, market makers, American Depositary Receipts.
