FINRA

2024-05-05

The Financial Industry Regulation Authority (FINRA) has transformed over the years. What began as an unobtrusive self-regulatory organization has become a gatekeeper with broad authority, regulating the trading of over 5,000 securities. While the Security Exchange Commission (SEC) has historically been and continues to be a large presence in securities regulations, FINRA has become equally dominant both in creating and regulating transparency and in processing procedural matters. 

FINRA and the SEC work together to prosecute issuers when regulatory infractions occur. Because FINRA does not hold the legal authority to prosecute any individual, it actively engages in investigations surrounding market fraud and shares its findings with the authorities that do prosecute. In this way, FINRA plays a vital role in the prosecution of those who violate securities laws. Though its principal mandate is in broker-dealings, FINRA does exercise some oversight on over-the-counter markets, such as OTCQX, OTCQB, OTCBB or pinksheets. FINRA Rule 6490, which was enacted in September 2010, created specific requirements surrounding company changes.

Rule 6490

FINRA Rule 6490, titled “Processing of Company Related Actions,” requires that companies that trade on over-the-counter markets notify FINRA of any significant changes no later than 10 calendar days prior to the record date of the change by filing an Issuer Company-Related Action Notification Form along with supporting documents (see Securities Exchange Act Rule 10b-17). Specifically, Rule 6490 requires advance notice of changes to any of the following: 

  • Dividends or other distributions
  • Forward or reverse stock splits, or rights or other subscription offerings
  • Any issuance or change to a symbol or name
  • Mergers, acquisitions, dissolutions or other company control transactions
  • Bankruptcy or liquidations

It is important to note that symbol changes do not automatically come with a name change. Therefore, any company seeking a name change must additionally request a symbol change.   

Required Documentation

Like any regulatory body, FINRA retains broad discretion regarding both the paperwork required from companies and the standards for each document. Generally, however, FINRA requires: 

  • a file-stamped copy of the articles of incorporation;
  • a file-stamped copy of any merger articles;
  • an executed and notarized resolutions appointing both current and former officers and directors;
  • a Transfer Agent Verification form from any issuers to the applicable agents;
  • a legal opinion stating the corporate action taken complies with state law;
  •  a notarized shareholder consent to the action taken;
  • a cover letter providing:
  • the complete corporate history of the issuer, and 
  • all material facts of the action requested, including all changes that have occurred from the original date of incorporation to present; and
  • if relevant, a written confirmation from the issuer’s securities attorney that an amendment to the articles of incorporation is not required (citing the applicable law).

Issuers should be prepared to provide additional information or documentation upon request along with further details regarding the information contained within the documentation already provided. 

Request Denial 

In some cases, FINRA may deny an issuer’s request for a corporate change. Generally, a request may be denied in any of the following circumstances: 

  • The issuer is not current in its reporting.
  • Parties related to the action are the subject of pending, adjudicated, or settled regulatory action or investigation or criminal or civil action related to fraud or securities law.
  • The settlement and clearance process holds significant uncertainty.
  •  FINRA believes forms and information submitted are incomplete, inaccurate, or lack proper authority.
  • A government authority has indicated persons related to the action may be involved in fraudulent activity.

FINRA & Specific Markets

FINRA and Rule 6490 may hold certain implications for your company and its goals. Reach out to the Law Offices of Destiny Aigbe, PLLC today to discuss any of the information above, further laws that may affect your company, and your goals so that we can help you reach them.