Effective September 27, 2010, the SEC has approved new 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 PinkSheets) timely notify FINRA 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, and implements fees for these services.

FINRA and the OTCBB

FINRA (the Financial Industry National Regulatory Authority) operates the OTC Bulletin Board and processes corporate actions for changes such as splits and name changes. FINRA also issues trading symbols to over the counter (non-exchange) traded issuers and maintains a symbols database for issuers. When processing by FINRA of a corporate action is complete, FINRA notifies the OTC marketplace of such changes and actions, such as repricing securities following a forward or reverse split, or issuing a new trading symbol following a name change or merger.

Historically, FINRA’s role has been largely ministerial with limited jurisdiction to impose informational or other requirements, and no power to reject requested changes. However, the SEC began to express concern that certain parties were using FINRA to assist in fraudulent activities, such as usurping the corporate identity of publicly traded entities by either reinstating an entity with no authority or creating new entities with the same name as the public entity. Accordingly, Rule 6490 was created.

FINRA and Issuer Actions

The Rule codifies FINRA’s authority to conduct in-depth reviews of company related actions and allows the staff discretion not to process such actions where the information or forms are incomplete or when certain indicators of potential fraud exist. The staff now has broad discretion to ask for additional documents and evidence to support and verify the accuracy of submitted information.

Factors that may be considered by FINRA to deny an application for a change are limited to: (1) FINRA staff reasonably believes the forms and provided documentation is not complete or accurate; (2) a reporting issuer is not current with its reporting obligations; (3) FINRA has actual knowledge that the Company or Company related parties are the subject of a pending investigation by a regulatory body or have been adjudicated against adversely; (4) a government authority or regulatory has informed FINRA that the company related action may be potentially related to fraud or pose a threat to public investors; or (5) there is significant uncertainty in the settlement clearance process for that security.

FINRA and Processing Fees

In addition, the new Rule allows FINRA to charge fees to issuers for processing these corporate actions. In furtherance of the Rule and its new duties, FINRA has created certain forms and information requirements for Issuers to complete and submit. In addition to information forms which must be completed by the Issuers, FINRA now requires notarized and verified background corporate records, board and shareholder resolutions, proof of change of control (including resignations and appointments for all changes in officers and directors) and attorney opinion letters. All requests must be accompanies with the newly imposed fees. The new FINRA fees range from $200 for a timely notice to $5,000 for a late notice (with $1,000 and $2,000 in between fees), and a $4,000 fee to appeal an adverse decision.

Securities Attorney Laura Anthony

Securities attorney Laura Anthony provides expert legal advice and ongoing corporate counsel to small public Companies as well as private Companies seeking to go public on the Over the Counter Bulletin Board Exchange (OTCBB). Ms. Anthony counsels private and small public Companies nationwide regarding reverse mergers, due diligence on public shells, corporate transactions and all aspects of securities law.

Ms. Anthony is the Founding Partner of Legal & Compliance, LLC, a national corporate, securities and civil litigation law firm based in West Palm Beach, Florida. The firm’s corporate and securities attorneys provide technical legal services to small and mid-size private and public (OTCBB) Companies, entrepreneurs, and business professionals nationwide. Contact us today for a FREE consultation!

Over the past few years, the historical “PinkSheets” has undergone some major changes, starting with the creation of certain “tiers” of issuers and culminating in its newly refurbished website and new URL www.otcmarkets.com. Where the term “PinkSheets” used to denote an over the counter quotation system using the website www.pinksheets.com it now simply refers to the lower tier of entities that trade on the over the counter market. In fact the URL www.pinksheets.com no longer exists with users being redirected to the new www.otcmarkets.com.

Three Levels of Reporting

The new www.otcmarkets.com divides issuers into three (3) levels: OTCQX; OTCQB and PinkSheets. The new website also provides quotes for the OTCBB but it seems this is just more as a comfort or segue until the industry gets used to the idea that the “bulletin board” is no more. The OTCBB has no particular listing or quotation requirements other than that the issuer be subject to the reporting requirements of the Securities Exchange Act of 1934, and be current in their reports. As noted below this is the exact same requirement for issuers on the OTCQB.

OTCQX

Issuers on the OTCQX must be fully reporting and current in their reporting obligations with the SEC and also undergo a quality review by industry professionals. Issuers on the OTCQB must be fully reporting and current in their reporting obligations with the SEC but do not undergo additional quality review. Issuers on the PinkSheets are not required to be reporting with the SEC. However, such issuers are then further qualified based on the level of voluntary information provided to the www.otcmarkets.com. Issuers with no information are denoted by a skull and crossbones, where Issuers with information analogous to that contained in a 15c2-11 application, are denoted with a “current information” symbol and those in between by a “limited information” symbol.

SEC and FINRA Reporting Requirements

Although the entire over the counter market is regulated by the SEC and FINRA, both www.otcmarkets.com and www.otcbb.com are now privately owned and merely serve as quotation mediums. Moreover, www.otcmarkets.com is more user friendly and up to date than www.otcbb.com. In fact, FINRA just sold www.otcbb.com and its trademark to an independent third party, in an effort to remove itself from operating the over the counter market to overseeing the market and being its primary regulator. So if all over the counter quotes can be found at www.otcmarkets.com and companies trading on the OTCQB have the exact same standards as the OTCBB, and FINRA is no longer directly associated with the OTCBB; where does that leave the OTCBB? I believe as an acronym which will soon find itself antiquated.

Securities Attorney Laura Anthony

Securities attorney Laura Anthony provides expert legal advice and ongoing corporate counsel to small public Companies as well as private Companies seeking to go public on the Over the Counter Bulletin Board Exchange (OTCBB). Ms. Anthony counsels private and small public Companies nationwide regarding reverse mergers, due diligence on public shells, corporate transactions and all aspects of securities law.

Ms. Anthony is the Founding Partner of Legal & Compliance, LLC, a national corporate, securities and civil litigation law firm based in West Palm Beach, Florida. The firm’s corporate and securities attorneys provide technical legal services to small and mid-size private and public (OTCBB) Companies, entrepreneurs, and business professionals nationwide. Contact us today for a FREE consultation!