Enforcement of a relatively new rule of the Financial Industry Regulatory Authority (FINRA) has resulted in significant fees in 2011 for small issuers with securities traded over-the-counter. FINRA Rule 6490 requires issuers to provide notice to FINRA of certain company-related actions, such as dividends and stock splits, or face a $5,000 fee, which some might characterize as a fine.

FINRA’s ability to charge issuers is new as of 2010, and is a significant departure from FINRA’s historically ministerial role with respect to issuers. FINRA primarily oversees broker-dealer member firms, but it also performs certain functions for issuers of over-the-counter securities. For example, it reviews and processes requests to announce or publish certain actions by issuers of OTC securities and maintains the symbols database for OTC securities.

Many small issuers do not realize they may be subject to the jurisdiction of FINRA or SEC Rule 10b-17, which requires notification of certain corporate actions by issuers with securities that are “publicly-traded.” Presumably, FINRA views any securities that are quoted on the OTC markets as “publicly-traded” under Rule 10b-17. Unfortunately, many non-exchange listed issuers with no SEC reporting requirements and a small volume of shares traded over-the-counter have never heard of FINRA. It is understandable considering such corporations do not take any steps to have their shares listed or traded; rather, the shares are listed by market makers that apply to quote the issuer’s securities.

FINRA Rule 6490 requires advance notice to FINRA of the following corporate actions:

  • dividends or other distributions in cash or kind;
  • stock splits or reverse stock splits, or rights or other subscription offerings;
  • any issuance or change to a symbol or name;
  • mergers, acquisitions, dissolutions or other company control transactions; and
  • bankruptcy or liquidations.

Issuers with securities traded over-the-counter should determine whether notice to FINRA is required before taking these corporate actions. Issuers that regularly pay dividends should take steps to ensure notice is provided to FINRA at least 10 days before the record date.