The Financial Industry Regulatory Authority, or FINRA, saw key changes in the way corporate actions are handled this past year, including eliminating time-consuming paperwork and adding issuer fees for corporate action processing.
As far as paper elimination is concerned, FINRA has created interactive PDF documents for both issuers and transfer agents involved in the corporate action process. A simple, consolidated form is available from FINRA’s website for issuers, getting rid of much paperwork and saving issuers time.
They will not, however, be saving issuers money. Effective September 27, 2010, the SEC approved Rule 6490 in relation to FINRA’s processing corporate actions for unlisted securities. Under this rule, FINRA is authorized to charge issuers processing fees for corporate actions. If the 10b-17 notice is filed within ten calendar days prior to the corporate action date the fees are not extreme, but late filing fees will accumulate for issuers who don’t comply with the rule.
Also under rule 6490, FINRA’s Department of Operations now has authority to examine the legitimacy of corporate action requests. FINRA is authorized to use their discretionary power to reject questionable notices. FINRA has given five factors that may cause a corporate action request to be rejected:
1. Forms and documents are incomplete, inaccurate, or without proper authority.
2. The issuer is not current in their filings
3. Parties related to the action are subject to regulatory, civil, or criminal action related to securities law violations or fraud
4. Parties related to the action are involved in fraudulent activities or activities that pose a threat to public investors.
5. “There is significant uncertainty in the settlement and clearance process for the security.” (Abandoned or neglected shells revived and presented to FINRA for a reverse merger could have difficulty going through the corporate action process if clean shareholder records are not available.)
By Kassidy Mather
If a notice is rejected, the issuer can appeal the decision within seven days. Three members of FINRA’s UPC Committee will evaluate an appeal request for a non-refundable fee of $4000.
Though issuers may not be too happy with FINRA'S new claim to power and rising costs, these changes have been made with the goal of preventing fraud in the marketplace. With feedback from issuers, this coming year will show the effectiveness of these new policies.
Colonial Stock Transfer Company