Why Some Stocks Have Five Character Ticker Symbols
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If you trade OTC stocks you may have noticed that many of them have five-character symbols, such as AWLIF (Ameriwest Lithium Inc) or TCEHY (Tencent Holdings Ltd.). Most likely, you will see an 'F' or 'Y' at the end, as these are the two most common of the fifth characters. However, what many investors do not realize, is that there are many other letters that may appear as the fifth character, and those letters each have a special meaning.
First, we will cover the common fifth characters 'F' and 'Y'. In some cases, you may even find a company with both an F and a Y version of the stock listed on the OTC Exchange.
F is applied to stock issued and traded on a foreign exchange which have been registered to trade on the OTC Market in the U.S. You will likely be able to find the primary (foreign) exchange and symbol with a quick internet search. Many countries have one or more exchanges, but you will commonly see exchanges from Canada, United Kingdom, France, Germany, Japan, and Switzerland, for example. By listing the OTC Market, these stocks are available to a much larger group of potential investors. There are thousands of foreign companies listed this way on the OTC exchange.
The fifth character of 'Y' is similar to 'F', but has a slightly different meaning. These stocks are also companies that trade on a foreign exchange, but they are trading as American Depository Receipts (ADRs) in the U.S. ADRs are not stock certificates, rather they are certificates issued by a bank in the United States representing shares of a company traded on a foreign exchange.
Another character you may see is W, which stands for warrant. OTC companies typically get financing by selling shares to a large investor or through an investment bank. In order to sweeten the deal for investors, the company will offer warrants in addition to the shares. These warrants then trade on the OTC just like the stock, although volume can be very low and the bid/ask spread can be very large.
In many cases, the fifth character denotes a particular class or type of share. Some examples are:
A = Class A Shares
B = Class B Shares
G, H, I = Bonds
M, N, O, P = Preferred Shares
While most fifth characters are informational and do not signal anything positive or negative about a stock, there are some to watch out for. Two of the most common are: 1) E = Delinquent in filing SEC required reports, and 2) Q = Bankruptcy. Investors should learn to recognize these two letters quickly, as they are very significant.
You should be aware that stocks with five-character symbols will remain five characters when an action like bankruptcy occurs. The fifth character will be replaced with the appropriate character. For example, stock XXXXF will be quoted and trade under the symbol XXXXE if the company is late filing its financial forms.
So, what does all of this mean for the average investor? The list and examples above are just some of the possible fifth characters you will see. There are many more and each has its own meaning. It is not likely that you will come across many of them in normal investing, but if you see an unusual one then you will know that it means something. If you do your due diligence, you will know why a stock has a particular fifth character and what, if any, the significance there is. Successful investing in OTC stock means knowing exactly what you own. In other words, investors need to thoroughly research a company before buying the stock!