FINRA Form 211 and Getting Your Stock Trading

To get your stock trading, no matter how you became public, you have to get the stock quoted on the Pink Sheets, OTCBB markets or on a stock exchange. For small companies this means getting the stock trading on the Pink Sheets or OTCBB.

To have a trading market you need one or more market makers. This market maker must be a broker-dealer who is a member of FINRA and registered with the SEC.

To start trading, one market maker must file a Form 211 with the Financial Industry Regulatory Authority, FINRA, and make a market in your stock.

A FINRA rule says that market makers are not supposed to charge any fee for filing a Form 211. We polled all the market makers listed on Pink Sheets last year and all of them but one wanted a $10,000 “due diligence” fee or some such to file the Form 211. Given the expense and time involved, and the likelihood that filing for a fraudulent company is a bad reflection on them, we can hardly blame them for wanting to do due diligence. Other than that, we believe a market maker should be willing to file a Form 211 if it believed that substantial business would develop in trading the stock. Market makers make money mainly on volume.

FINRA processes the Form 211 and requires that there be enough non-affiliated shareholders with free trading stock to make trading in the stock possible. They do not want this stock to be concentrated in a few hands.

You will have to document in detail how this stock was offered and sold and prove that this was in full compliance with all the securities laws and rules of the SEC and the states. This stock has to bought in a bona fide transaction for investment and not simply gifted to the shareholders.

You will have to prove that your company is not a shell as defined in Rule 144. You will have to show that you are in a bona fide business with assets and at least be a development stage company.

You will have to produce a shareholder list from your transfer agent clearly showing free trading stock and an opinion of your securities lawyer that this stock is in fact free trading stock and not restricted FINRA may stop the Form 211 if you have any connection with unsavory characters or if there is anything else they do not approve of.

If FINRA does not approve your Form 211, you have the right to appeal to the SEC. We would expect that any such appeal is likely to be unsuccessful.

Getting the right documentation, getting a proper list of shareholders, and selecting a market maker are important steps in the process.

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