We Can Help You Understand And Meet FINRA Compliance Rules
In recent years, the Financial Industry Regulatory Authority (FINRA) has evolved from a relatively unobtrusive self-regulatory organization (SRO) into a dominant and pervasive securities market gatekeeper with sweeping authority. FINRA currently monitors and regulates the trading of more than 5,000 securities and employs a staff of over 3,400 individuals. FINRA is responsible for processing 15c2-11 applications by market makers, which result in the issuance of a trading symbol to, and the quotation of, the securities of issuers. Moreover, issuers with securities that publicly trade on the OTC markets must give FINRA advance notice on corporate actions ranging from reverse splits, name changes, changes of domicile, changing trading symbols and changes in capital structure. FINRA processes these corporate actions and relays the new information to the capital marketplace. If FINRA does not process a corporate action, it does not relay to the capital marketplace. Due to the ever-increasing complexity of FINRA compliance, representation by experienced securities counsel like our lawyers at Anthony L.G., PLLC, is essential for public issuers. In many cases, FINRA requires attorney opinion letters in conjunction with processing corporate actions.
The History Of FINRA
FINRA is a self-regulatory organization (SRO). Initially founded in 1939 as the National Association of Securities Dealers (NASD), FINRA was designed to regulate and license member brokerage firms, broker-dealers, their sales staffs and the exchange markets. As the scope of their powers grew, it became apparent that this modest SRO was slated to become a significant securities regulator. On July 26, 2007, the NASD officially became FINRA.
How FINRA Now Acts As A Gatekeeper
Not long ago, the responsibility of enforcing securities regulations fell solely on the shoulders of the Securities and Exchange Commission (SEC). In today’s environment, FINRA has become an equally dominant gatekeeper in establishing and maintaining market transparency while simultaneously processing procedural matters. FINRA has established the Office of Fraud Detection and Market Intelligence, which monitors the trading activity and press releases of issuers in the marketplace and conducts related investigations. FINRA performs many essential functions, including maintaining an orderly marketplace. FINRA works with the SEC as a front line in detecting and prosecuting issuers when regulatory infractions occur. Although FINRA in and of itself does not possess the legal authority to prosecute issuers, it actively engages in investigations related to market fraud. It shares its findings with prosecutorial powers (i.e., the SEC for civil actions and the Department of Justice or state attorney for criminal violations). FINRA maintains a vital role in enforcing securities laws by providing prosecutorial bodies with crucial data that substantiate when a violation has occurred.
Corporate Actions And Symbol Changes
Effective Sept. 27, 2010, the SEC approved FINRA Rule 6490 (Processing of Company-Related Actions). Rule 6490 requires that corporations whose securities are trading on the over-the-counter market (OTCQX, OTCQB, OTCBB, or pink sheets) notify FINRA promptly of certain corporate actions, such as dividends, forward or reverse splits, rights or subscription offerings, and name changes. The Rule grants FINRA discretionary power when processing documents related to the announcements. FINRA requires that the company complete the Issuer Company-Related Action Notification Form and submit it to FINRA no later than ten calendar days before the record date of the corporate action. In addition to the Form itself, FINRA requires the submittal of numerous supporting documents and historical corporate information. The historical corporate information must be on either the issuer’s letterhead or that of such issuer’s attorney. Symbol changes associated with name changes are not automatic and must be specifically requested. FINRA charges issuers fees for the processing of corporate actions. Late filings (i.e., less than 10 days before the effectiveness of the corporate action) are subject to late filing fee penalties, which can be substantial.
Chart Of FINRA Filing Fees
|SEA RULE 10b-17 ACTION|
|Timely SEA Rule 10b-17 Notification||$200|
|Late SEA Rule 10b-17 Notification Submitted at least five calendar days before Corporate Action Date||$1,000|
|Late SEA Rule 10b-17 Notification Submitted at least one calendar day before Corporate Action Date||$2,000|
|Late SEA Rule 10b-17 Notification Submitted on or after Corporate Action Date||$5,000|
|Other Company-Related Action||Fee|
|Voluntary Symbol Request Change||$500|
|Initial Symbol Setup||No Charge|
|Symbol Deletion||No Charge|
|Action Determination Appeal Fee||$4,000|
Navigate FINRA Compliance Challenges With Confidence
As with all regulatory processes, the assistance of an experienced attorney is vital. In the case of a FINRA request for the processing of a corporate action, the assistance of qualified counsel can make the difference in a delay that can stretch for months or even the refusal by FINRA to process the action at all. Although Form 211 is submitted by a market maker, such a market maker works closely with securities counsel to complete the application and assemble all the required supporting documentation. Moreover, FINRA generally requires a legal opinion regarding tradeability as part of the application process.