OTC Markets Issues Comment Letters On 15c2-11 Requirements - YouTube

I’m attorney Laura Anthony founding partner of Legal & Compliance, a full service corporate,

securities, and business transactions law firm.

Today is the continuation in a LawCast series talking about the rule 15c2-11 requirements.

On January 8, 2018, OTC Markets Group submitted a comment letter to FINRA related to FINRA

Rule 6432.

Rule 6432 requires that a market maker or broker-dealer have the information specified

in Securities Exchange Act Rule 15c2-11 before making a quotation in a security on the over-the-counter

market.

In the last LawCast in this series I summarized Rule 6432.

On February 8, 2018, OTC Markets submitted a second comment letter to FINRA, this one

related to FINRA Rule 5250.

Rule 5250 prohibits companies from compensating market makers in connection with the preparation

and filing of a Form 211 application.

In particular, FINRA Rule 5250 is entitled payment for market making.

Rule 5250 specifically prohibits a market maker from accepting any payments or any other

consideration directly or indirectly in association or in connection with publishing a quotation

acting as a market maker or submitting an application in connection therewith.

In other words a market maker cannot accept any consideration whatsoever for preparing

or submitting a form 211 application with FINRA.

However, the fact is that putting together the information required by the form 211 and

responding to FINRA comments takes administrative time and effort, and I would advocate that

a broker-dealer should be able to accept some some form of compensation to cover these internal

expenses.

Moreover, the form 211 process has changed over time, becoming much more arduous for

the submitting market maker.

I remember when a form 211 could actually be submitted three days prior to quotation,

and based on the market makers assertion that they were in possession of the required information

the forum was processed oftentimes in 24 hours.

Today a form 211 goes through an extensive review comment and response process similar

to an SCC review of a filing.

The comment and review process is completed when FINRA either clears the form 211 or refuses

to clear the form.

The market maker is required to provide FINRA with a copy of all information and documents

in their possession and FINRA reviews the information and challenges the market makers

position that the information is adequate.

This process takes weeks at a minimum and often times must longer.

I’ve even seen it go over a year.

Since a market maker cannot even cover their internal costs for these labor intensive process,

fewer market makers are willing to engage in the process at all.

I’m securities attorney Laura Anthony, founding partner of Legal & Compliance, and producer

of LawCast.

Should you have any questions about today’s topic, please visit SecuritiesLawBlog.com

and LawCast.com, or contact me directly.

Inquiries of a technical nature are always encouraged.