New Corporate Action Notification Requirements for Issuers of Non-Exchange Listed Securities

On Sept. 27, 2010, a new rule of the Financial Industry Regulatory Authority, Inc. (FINRA), FINRA Rule 6490, became effective requiring issuers of non-exchange listed equities and debt securities to provide timely notice to the FINRA of certain corporate actions. The issuers subject to this new rule include those whose securities are quoted on the OTC Bulletin Board and Pink Sheets. The corporate actions which require notice to the FINRA under the new rule include distributions of cash or securities such as dividends, stock splits, reverse stock splits and other actions, including name changes and rights and subscription offerings. FINRA Rule 6490 codifies Rule 10b-17 under the Securities Exchange Act of 1934.

Rule 6490 requires issuers to complete and file a notification document and provide certain prescribed supporting information regarding the corporate action with the FINRA at least 10 calendar days prior to the record date of the corporate action. Issuers also are required to pay a filing fee of $200 to the FINRA at the time of the filing of the notification materials. If an issuer does not submit the required notifications and pay the applicable fees in accordance with the 10-day time frame referenced above, they will be subject to late fees of up to $5,000 and the FINRA may delay the processing of the documents to announce the corporate action. The notification form issuers must file under the new rule is available at:
http://www.finra.org/Industry/Compliance/MarketTransparency/UPC/P117115 .

The new Rule also permits FINRA to request additional documents and, on a case-by-case basis, conduct detailed reviews of such submissions and delay a request to announce a corporate action. The detailed review will be triggered only if the FINRA Operations Department believes that any of the following five factors outlined in Rule 6490 exist:

• FINRA believes the forms and other documentation submitted by the issuer are not complete, accurate, or were filed without the appropriate authority;
• The issuer is not current with its reporting obligations to the SEC or other regulatory authority;
• FINRA has actual knowledge that parties related to the corporate action are the subject of pending or settled regulatory action or are under investigation by a regulatory body or are pending criminal action related to fraud or securities law violations;
• FINRA has actual knowledge that persons related to the action may potentially be involved in fraudulent activities related to the securities market or may pose a threat to public investors; or
• There is significant uncertainty in the settlement and clearance process for the security.

The new Rule imposes considerable additional fees for issuers that fail to comply with the new Rule. The filing fees that may be assessed are as follows:

• Late filing, but the filing is made at least 5 calendar days before the effective date of the corporate action – fee of $1,000;
• Late filing, but the filing is made at least 1 calendar day before the effective date of the corporate action – fee of $2,000; and
• Filing on or after the effective date of the corporate action – fee of $5,000.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.