Business

FINRA Form 211 and How to Trade Your Shares

In order for your shares to be traded, no matter how it was made public, you must have the shares listed on the Pink Sheets, OTCBB markets, or on a stock exchange. For small companies, this means having the shares trade on Pink Sheets or OTCBB.

To have a commercial 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 market their shares.

A FINRA rule says that market makers are not supposed to charge a fee for filing a Form 211. Last year, we surveyed every market maker listed on Pink Sheets and all but one wanted a fee of $ 10,000 “due diligence” or something like that. to file Form 211. Given the expense and time involved, and the likelihood that filing a fraudulent company is a bad reflection of them, we can hardly blame them for wanting to do due diligence. Other than that, we believe that a market maker should be willing to file a Form 211 if they believe that substantial business will develop from trading the shares. Market makers make money primarily from volume.

FINRA processes Form 211 and requires that there be enough unaffiliated shareholders with freely tradable shares to make trading of 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 you fully comply with all SEC and state securities laws and regulations. These shares must be purchased in a bona fide transaction to invest and not simply gifted to shareholders.

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

You will need to produce a list of shareholders from your transfer agent that clearly shows the freely tradable shares and an opinion from your securities attorney that these shares are, in fact, freely tradable and unrestricted shares FINRA may stop Form 211 if you have any connection to unsavory characters or if there is something else they don’t approve of.

If FINRA does not approve your Form 211, you have the right to appeal to the SEC. Hopefully any such appeal will not be successful.

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

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