FINRA Form 211 and Get Your Stock Trading

In order for your shares to trade, regardless of how you went public, you must list the shares on Pink Sheets, on the OTCBB markets, or on a stock exchange. For small businesses, this means getting stock trading on Pink Sheets or OTCBB.

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

To begin trading, a market maker must file a Form 211 with the Financial Industry Regulatory Authority, FINRA, and make a market in its shares.

A FINRA rule says that market makers should not charge any fees for filing a Form 211. We surveyed all of the market makers listed on Pink Sheets last year and all but one wanted a $10,000 “due diligence” fee. or something like that to file Form 211. Given the expense and time involved, and the likelihood that filing a fraudulent company will reflect poorly on them, we can hardly blame them for wanting to do their due diligence. Other than that, we believe that a market maker should be willing to file a Form 211 if he believes that substantial business will develop from trading the stock. Market makers make money primarily on volume.

FINRA processes Form 211 and requires that there be enough unaffiliated shareholders with freely traded shares to make trading in the shares possible. They don’t want this stock to be concentrated in a few hands.

You will need to document in detail how these shares were offered and sold and show that this complied with all SEC and state securities laws and regulations. These shares must be purchased in a bona fide investment transaction and not simply gifted to shareholders.

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

You will need to produce a shareholder list from your transfer agent that clearly shows the freely traded shares and an opinion from your securities attorney that these shares are in fact freely traded shares and are not restricted. FINRA can stop the Form 211 if it has any connection to unsavory characters. or if there is something 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.

Obtaining the correct documentation, obtaining a proper list of shareholders, and selecting a market maker are important steps in the process.