Tuesday, September 27, 2022

Brokerages to Buy Dark Stocks

 I wish I had a rosy picture to paint you but alas we have reality to deal with.  A year ago in Sept 2021 the new SEC rule went into place, resulting in the destruction of dark stock trading.  Every single online brokerage I know of in the US stopped allowing buys in any dark stocks.  

This post is a summary of the few brokerages that still allow you to buy non-filing dark stocks.  

If anyone has found a solution please comment or send me an email.  

Unfortunately I don't have a good solution and personally I cannot buy anything non-filing.  All the online brokerages just threw up there hands and said "that's it, we're out" and OTC Markets has become the arbiter of what we're allowed to buy.  

I have all my accounts with Schwab which allows the following based on SEC status and OTC Markets tier:

  • I can buy or sell online
    • SEC Registered
    • OTCQB
    • OTCQX
    • Pink Current Information
    • Pink Limited Information
  • I can sell only.  No buys allowed
    • Expert Market
    • Grey Market

Those last two bullet points are the non-filers I cannot buy anymore.  It's super sad as today I would not be able to buy two of my all time biggest winners from the past HEMA, SIMA.  

Personally I am really burnt out on the SEC and brokerages.  I haven't spent much time trying to find a solution other than talking to a lot of people.  I know a few who contacted every brokerage they could find similar to what I did in 2016.  

Below is the list of options I have heard are available and this list is by no means exhaustive.  If you know of more please comment or email me and I'll update.  If you are interested I suggest you reach out to these brokerages and ask all the necessary questions.  

  • Discount online brokerages
    • Questrade
      • Only allowed if you are not be located in the United States.  
        • I've heard from several people in other countries they are allowed to open accounts and trade but people in the US are for some reason not allowed.
      • To my knowledge this is the only discount online brokerage that allows non-filing stock buys
  • Full service brokerages

disclosure: I hate the SEC

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  1. added Canaccord Genuity after a blog reader told me they allow buys

    1. It looks like Canacoord is UK/AU, can anyone confirm that they allow US funding?

  2. How much work is it to become a registered investment advisor? Then you will be able to buy them I think.

    1. @Anonymous did you ever find out the answer to this?

  3. I totally agree that this has been very frustrating. A separate issue is getting quotes on these dark stocks. Anyone have a broker where you can get your own quote without calling in?

  4. First, as I commented previously in "Brokerages, the new SEC Rule, and a Podcast," we still have the option of suing for a permanent injunction against rule 15c2-11, which is blatantly unconstitutional as it prohibits dealers from advertising the price of a legal product. The dealers have not sued because they are afraid of the SEC and do not want to antagonize it, and small investors have not sued because the potential benefits of the investment opportunities are not worth the time and cost. So Dan’s problem is not that he can’t do anything; his problem is that he is not willing to do what he can do. That is not a criticism; I have not sued either. I do want to be clear-eyed about the fact that my inaction does not reflect helplessness, but rather a choice.

    Second, Canaccord Genuity is not just a full service broker, but also a market maker. It often acts as a counterparty to stock buys and sells, and frequently appears in level 2 quote lists. So it is possible that if someone opens an account with them, they will be willing to trade with the customer from their own inventory without using any market. That assumes they still have inventory in these stocks.

    Third, Biloxi Marsh Lands Corporation is a former “pink no-information” company which has circumvented the SEC by setting up a bulletin board – that is, a market – for shareholders to post buy and sell orders on their own. The company uses Banclist to host the site. Banclist, which I did not previously know about, maintains bulletin boards for several small bank stocks. These are not necessarily victims of the new SEC rule; I think these are companies which, although public, were never quoted by any market makers and hence never had ticker symbols. So it is possible to create a market out of thin air. The challenge is informing people about it. Banclist requires a company to sponsor a listing. Biloxi’s website is confusing but if you look around long enough you’ll find the information.

    Fourth, as the Canaccord Genuity and Biloxi examples illustrate, Dan has slightly misstated the problem. What he needs is not a “broker” to enable him to access a “market.” What he needs is to find a counterparty – someone willing to sell him shares of a stock he wants at a price he wants. Brokers and markets are simply means to that end. Once he finds a counterparty, they can write a sales contract and exchange a bank check and transfer the shares by DTC transfer or with an endorsed and medallion-stamped stock certificate. I suppose the previous sentence may not make sense to someone whose sense of reality is overly shaped by the internet, but these are business transactions, not computer games. Finding the counterparty is the hard part. Apart from the previous two methods, one could call the company, or attend an annual meeting, and ask whether anyone knows anyone interested in buying or selling shares. This is one of the ways Warren Buffett got started, though it’s more fun to read about than do.

    Fifth, although traditionally illiquid markets offer the best opportunities to find undervalued stocks, I am skeptical that many good deals will be available even if we can find counterparties. Now that it is so hard to buy and sell these securities, anyone who goes through the trouble will be very, very focused on the task, and more likely to carefully evaluate the price and value than someone who sells because he or she gets bored holding a stock and casually calls up his or her broker or enters a sell order online.

    1. @Anonymous have you been able to buy any dark stocks using Canacoord, Biloxi, etc? If so which one and are you a US citizen?

    2. Hello! I am the Anonymous who wrote the comment. Thank you for asking, after so much time has passed. I am a U.S. citizen with no full service broker or market maker such as Canaccord Genuity. I have not tried to buy any shares of Biloxi, as I am not particularly interested in the company, and more importantly, no shares are available. Currently Banclist shows two bids for 10,000 shares at 5.50 each, and no asks. So even though we have a market, there are no shares available at any price in that market. This is the problem I discussed in the fifth paragraph above, and is why I don't spend too much time thinking about getting access to the expert market. I suspect that most of the quotes there resemble those on Banclist, with few if any opportunities. The problem is that the SEC banned electronic market making, and all the quotes are from principals. That did most of the damage. The decision of OTCMarkets to keep out small investors and the refusal of discount brokers to seek counterparties merely keeps us from accessing a tiny number of remaining opportunities. Furthermore, I expect brokers really didn't care about this business anyway and might have stopped serving us on their own eventually. If I read correctly, for instance, Robinhood does not allow trades in any non-Nasdaq OTC stocks. I assume there is not enough volume to justify the capital which market makers have to invest, and they served the market out of inertia. To make the business profitable, brokers would have to charge 1970s-style prices, which were sometimes a few hundred dollars a trade then and would certainly be more now. Although I resent my broker for not providing access, I also enjoy not paying high commissions on stock trades. The point is that even without the SEC rule, which is clearly unconstitutional, something would have to give. I suspect the rule just sped up a process.

  5. Hey Dan, I noticed that recent comments to your blog are not appearing on the right hand side of the page like they used to. Are you able to bring that back?

    1. The widget I use gets confused whenever someone comments on one of my pages that's not a main page blog post. The other day I got a comment on my "about me" page and that reset the recent comments widget. I don't know how to fix that but haven't really spent much time on it either

  6. Dan - Have you (or anyone else?) used any of the brokers that you listed to buy Expert Market stocks? Thanks!

    1. not me. I'm still using Schwab and can't buy expert market stocks

  7. Just found out from a friend that Interactive Brokers shows bid/ask for expert market stocks which is news to me. I haven't seen an electronic bid/ask for those stocks since the SEC rule change but you can see it on IB