Yellow Sheets - Explained
What are Yellow Sheets?
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Table of ContentsWhat are Yellow Sheets?How Do Yellow Sheets Work?Yellow Sheets and the National Quotation Bureau
What are Yellow Sheets?
A yellow sheet is a statement (bulletin) that contains all the necessary information about corporate bonds being traded on the OTC (over-the-counter). Debt securities that a corporation issues which are meant to be sold to investors are called corporate bonds. Information provided by a yellow sheet are the price of corporate bonds, the bid and ask prices of the bonds, closing price as well as the yield of the corporate bonds. Trading on the OTC requires no physical location, it is a decentralized market where exchange of corporate bonds or securities occur. The yellow sheet plays a significant role in this market.
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How Do Yellow Sheets Work?
Due to the form of trading that takes place in OTC markets yellow sheets provide basic information about corporate bonds which are available in hard copy and soft copy for subscribers who purchase them online. Yellow sheets are bulletins that supply subscribers with contact information of brokerage companies in charge of the particular bond they want to purchase. Yellow sheets also supply information such as prices of bonds, quotes for listed stocks, asks and bid prices. Information on bonds issued by companies are provided on yellow sheets and not bonds listed on exchange. Companies that are not listed on national exchanges who want to trade their bonds take advantage of OTC and information about them are supplied by OTC. It is important to know that bonds that are listed the yellow sheets have higher risks than other fixed-income securities. The fact the most of the companies are not listed on national exchange pose a great risk. Other risks associated with bonds listed in the yellow sheets are;
- The companies are not listed in exchanges because they are newly established, so there should be a tendency of defaults on bonds.
- Bonds listed in the yellow sheets are not very active because the market in which they are traded is limited.
- It is difficult to get a buyer for bonds in these category, should a bondholder decide to sell them.
Yellow Sheets and the National Quotation Bureau
The National Quotation Bureau (NQB) is responsible for providing bauxite information about bonds or stocks that are traded on the OTC. The NQB publish such information on different colors of sheets such as pink sheet, yellow sheet, white sheet and others. The NQB was established in 1913. After so much merging and acquisitions in 1963 and 1996, NQB went electronic in 1998 and its name was changed to OTC market groups.