File Form 211

File Form 211

To get your stock trading, you will have to get a market maker to file a Form 211 with FINRA. We suggest you start early on this. If there are any issues, it can take longer than you expect.

FINRA rules prohibits a market maker from initiating or resuming the quotation of a non-NASDAQ security in a quotation medium unless the member has demonstrated compliance with the requirements of SEC Rule 15c2-11 pertaining to the review and maintenance of information about the security and its issuer.

Generally, SEC Rule 15c2-11 requires that a broker-dealer review and maintain in its records specified information about a security and issuer (e.g., prospectuses, offering circulars and annual reports) prior to publishing a quotation for a security in any quotation medium. In addition, SEC Rule 15c2-11 requires that upon reviewing the specified information, a broker-dealer must have a reasonable basis to believe that the information is accurate in all material respects and the sources of such information are reliable.

To demonstrate compliance with both FINRA Rule 6740 and SEC Rule 15c2-11, a market maker must file Form 211, together with the information required under SEC Rule 15c2-11(a), at least three business days before the quotation is published or displayed.

Form 211 is mandated by SEC Rule 15c211is entitled “Initiation or Resumption of Quotations without Specified Information.”

This rule was adopted to prevent fraudulent, deceptive, or manipulative acts or practices, and prohibit a broker or dealer to publish any quotation for a security or, directly or indirectly, to submit any such quotation for publication, in any quotation medium unless such broker or dealer has in its records the required documents and information. The broker also has to review the information together with any other documents and information required by the rule and has a reasonable basis under the circumstances for believing that the information is accurate in all material respects, and that the sources of the information are reliable.

We refer you to the rule for the exact requirements, but generally the information required is:

A copy of the prospectus under the Securities Act of 1933 for an issuer that has filed a registration statement (or Regulation A offering circular) , which became effective less than 90 calendar days prior to the day on which such broker or dealer publishes or submits the quotation to the quotation medium, as long as there is no stop order which is still in effect, or A copy of the issuer's most recent annual report filed with the SEC if the issuer is required to file reports with the SEC together with any quarterly and current reports that have been filed under the provisions of the Act by the issuer after such annual report or annual report if the broker has a reasonable basis under the circumstances for believing that the issuer is current in filing annual, quarterly, and current reports.

The following information, which shall be reasonably current in relation to the day the quotation is submitted and which the broker or dealer shall make reasonably available upon request to any person expressing an interest in a proposed transaction in the security with such broker or dealer:

    1. the exact name of the issuer and its predecessor (if any);
    2. the address of its principal executive offices;
    3. the state of incorporation, if it is a corporation;
    4. the exact title and class of the security;
    5. the par or stated value of the security;
    6. the number of shares or total amount of the securities outstanding as of the end of the issuer's most recent fiscal year;
    7. the name and address of the transfer agent;
    8. the nature of the issuer's business;
    9. the nature of products or services offered;
    10. the nature and extent of the issuer's facilities;
    11. the name of the chief executive officer and members of the board of directors;
    12. the issuer's most recent balance sheet and profit and loss and retained earnings statements;
    13. similar financial information for such part of the 2 preceding fiscal years as the issuer or its predecessor has been in existence;
    14. whether the broker or dealer or any associated person is affiliated, directly or indirectly with the issuer;
    15. whether the quotation is being published or submitted on behalf of any other broker or dealer, and, if so, the name of such broker or dealer; and
    16. whether the quotation is being submitted or published directly or indirectly on behalf of the issuer, or any director, officer or any person, directly or indirectly the beneficial owner of more than 10 percent of the outstanding units or shares of any equity security of the issuer, and, if so, the name of such person, and the basis for any exemption under the federal securities laws for any sales of such securities on behalf of such person.
The broker or dealer submitting or publishing the quotation shall have in its records the following documents and information: (1) A record of the circumstances involved in the submission of publication of such quotation, including the identity of the person or persons for whom the quotation is being submitted or published and any information regarding the transactions provided to the broker or dealer by such person or persons, (2) A copy of any trading suspension order issued by the Commission pursuant to Section 12(k) of the Act respecting any securities of the issuer or its predecessor (if any) during the 12 months preceding the date of the publication or submission of the quotation, or a copy of the public release issued by the Commission announcing such trading suspension order; and (3) A copy or a written record of any other material information (including adverse information) regarding the issuer which comes to the broker's or dealer's knowledge or possession before the publication or submission of the quotation.

The broker or dealer must preserve the required documents and information required for a period of not less than three years, the first two years in an easily accessible place.
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 wants enough free trading shareholders to create a real market in the stock. FINRA will investigate how the stock was offered. They want to know that it was a bona fide purchase made with a significant amount of money. FIMRA will look at your list of shareholders provided by the transfer agent and see if the stock is free trading. They will want an opinion form you securities lawyer stating that this stock is not restricted. They want to know that in offering the stock, all securities rules were complied with in issuing the stock.
FINRA wants to know that you company is not a shell but it can be a development stage company if it is really in a business. FINRA will not let you trade if your company has any disreputable promoters.

If FINRA does not approve your Form 211, you can appeal to the SEC, but you will probably lose.

Again, start early on this filing.

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