Effective June 3, 2023, FINRA will be replacing and updating the system for filing a Company Related Action Notification form, which form begins the process with FINRA to effectuate a corporate action initiated by a company trading on OTC Markets. The new process allows companies to submit forms, get updates and respond to comments through an electronic FINRA gateway.
Effective September 27, 2010, the SEC approved FINRA Rule 6490 (Processing of Company Related Actions). Rule 6490 requires that corporations whose securities are trading on the OTC Markets notify FINRA in a timely manner of certain corporate actions, such as dividends, forward or reverse splits, rights or subscription offerings, symbol changes and name changes. The Rule grants FINRA discretionary power when processing documents related to the announcements.
Rule 6490 works in conjunction with Exchange Act Rule 10b-17. Rule 10b-17 states that “it shall constitute a manipulative or deceptive device or contrivance as used in section 10(b) of the Act for any issuer of a class of securities publicly traded… to fail to give notice in accordance with paragraph (b) of this section of the following actions relating to such class of securities: (1) a dividend or other distribution in cash or in kind… (2) a stock split or reverse split; or (3) a rights or other subscription offering.” Section (b) requires that notice be given to FINRA “no later than 10 days prior to the record date involved.”
When FINRA completes the processing of a corporate action, OTC Markets is notified of such change and the corporate action is reflected on the company’s quotation page on OTC Markets and all other quotation mediums (such as Yahoo Finance and Bloomberg). Most commonly, changes include the re-pricing of securities after a forward or reverse split and the issuance of a new trading symbol following a name change or merger and the appearance of the new name on the company’s quotation page.
Prior to 2010, FINRA’s role has been predominantly ministerial due to their limited jurisdictional ability to impose informational or other regulatory requirements, and fundamental lack of power to reject requested changes. Rule 6490 gave FINRA teeth, and they have used them.
Rule 6490(d)(3) provides:
“(3) Deficiency Determination
In circumstances where an SEA Rule 10b-17 Action or Other Company-Related Action is deemed deficient, the Department may determine that it is necessary for the protection of investors, the public interest and to maintain fair and orderly markets, that documentation related to such SEA Rule 10b-17 Action or Other Company-Related Action will not be processed. In instances where the Department makes such a deficiency determination, the request to process documentation related to the SEA Rule 10b-17 Action or Other Company-Related Action, as applicable, will be closed, subject to paragraphs (d)(4) and (e) of this Rule. The Department shall make such deficiency determinations solely on the basis of one or more of the following factors: (1) FINRA staff reasonably believes the forms and all supporting documentation, in whole or in part, may not be complete, accurate or with proper authority; (2) the issuer is not current in its reporting requirements, if applicable, to the SEC or other regulatory authority; (3) FINRA has actual knowledge that the issuer, associated persons, officers, directors, transfer agent, legal adviser, promoters or other persons connected to the issuer or the SEA Rule 10b-17 Action or Other Company-Related Action are the subject of a pending, adjudicated or settled regulatory action or investigation by a federal, state or foreign regulatory agency, or a self-regulatory organization; or a civil or criminal action related to fraud or securities laws violations; (4) a state, federal or foreign authority or self-regulatory organization has provided information to FINRA, or FINRA otherwise has actual knowledge indicating that the issuer, associated persons, officers, directors, transfer agent, legal adviser, promoters or other persons connected with the issuer or the SEA Rule 10b-17 Action or Other Company-Related Action may be potentially involved in fraudulent activities related to the securities markets and/or pose a threat to public investors; and/or (5) there is significant uncertainty in the settlement and clearance process for the security.”
Over the years, I have written about the FINRA corporate action review process a few times – usually complaining about potential regulatory overreaching (see, for example, HERE and HERE). However, the reality is that there have not been any regulatory or rule changes to the process in many years, and as such, not much to report until now.
As an aside, and back to complaining, the FINRA corporate action review process is more arduous today than it has ever been – ever! A straightforward corporate action has been taking 3-4 months to process with complicated cases (i.e., companies with any negative history or that touch crypto or blockchain in any way, often taking over a year). Moreover, the depth of review and questioning has increased dramatically. Companies should expect FINRA to review all current and historical corporate records and actions, outstanding debt/liabilities, shareholder records, and business descriptions and plans. As such, companies that are trading on OTC Markets and planning a corporate action should build in this significant timing factor and make sure all records are properly organized well in advance.
FINRA has expanded its “FINRA Gateway” to include processing of Company Related Corporate Actions. The Gateway is already used by broker dealers, including to process Rule 5110 Underwriter Compensation approval requests (see HERE). FINRA is calling the new gateway the “Corporate Actions Management Platform” and it will allow users to:
- Submit and update company-related action submissions
- Make electronic payments via FINRA’s OPAY system for assessed notification fees
- View the status of submissions
- Communicate with FINRA via messaging within each submission
- Receive notifications when a new information request is initiated by FINRA
- Respond to requests for information
Existing users (for example, our firm has gateway access on behalf of broker-dealer clients) will be able to use their existing access codes. FINRA will publish an entire user guide on its website in the weeks to come.
FINRA has indicated that the new process will “provide more transparency into the submission review status and introduces new user functionality to enhance the submission process including supporting edits to submissions and facilitate document sharing and communication within the system.” I am not hopeful that the new system will also result in a more expedited review process, but we shall see.
Laura Anthony, Esq.
Anthony L.G., PLLC
A Corporate Law Firm
Securities attorney Laura Anthony and her experienced legal team provide ongoing corporate counsel to small and mid-size private companies, OTC and exchange traded public companies as well as private companies going public on the Nasdaq, NYSE American or over-the-counter market, such as the OTCQB and OTCQX. For more than two decades Anthony L.G., PLLC has served clients providing fast, personalized, cutting-edge legal service. The firm’s reputation and relationships provide invaluable resources to clients including introductions to investment bankers, broker-dealers, institutional investors and other strategic alliances. The firm’s focus includes, but is not limited to, compliance with the Securities Act of 1933 offer sale and registration requirements, including private placement transactions under Regulation D and Regulation S and PIPE Transactions, securities token offerings and initial coin offerings, Regulation A/A+ offerings, as well as registration statements on Forms S-1, S-3, S-8 and merger registrations on Form S-4; compliance with the Securities Exchange Act of 1934, including registration on Form 10, reporting on Forms 10-Q, 10-K and 8-K, and 14C Information and 14A Proxy Statements; all forms of going public transactions; mergers and acquisitions including both reverse mergers and forward mergers; applications to and compliance with the corporate governance requirements of securities exchanges including Nasdaq and NYSE American; general corporate; and general contract and business transactions. Ms. Anthony and her firm represent both target and acquiring companies in merger and acquisition transactions, including the preparation of transaction documents such as merger agreements, share exchange agreements, stock purchase agreements, asset purchase agreements and reorganization agreements. The ALG legal team assists Pubcos in complying with the requirements of federal and state securities laws and SROs such as FINRA for 15c2-11 applications, corporate name changes, reverse and forward splits and changes of domicile. Ms. Anthony is also the author of SecuritiesLawBlog.com, the small-cap and middle market’s top source for industry news, and the producer and host of LawCast.com, Corporate Finance in Focus. In addition to many other major metropolitan areas, the firm currently represents clients in New York, Los Angeles, Miami, Boca Raton, West Palm Beach, Atlanta, Phoenix, Scottsdale, Charlotte, Cincinnati, Cleveland, Washington, D.C., Denver, Tampa, Detroit and Dallas.
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Ms. Anthony is an honors graduate from Florida State University College of Law and has been practicing law since 1993.
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