Sponsoring Market Makers l Going Public Bootcamp

Sponsoring Market Maker Attorneys - Going Public Lawyers
Securities Lawyer 101 Blog

One step in going public transactions is obtaining a stock trading or ticker symbol from the Financial Industry Regulatory Authority (“FINRA”).  For a company to obtain a ticker, a sponsoring market maker must submit an application on Form 211 on the issuer’s behalf to the FINRA.

Sponsoring markets makers have become one of the most important players in the going public process because they are the only ones who can apply for a ticker symbol. This applies in initial public offerings and direct public offerings.  Companies not qualifying for a stock exchange often elect to go public on the OTC Markets OTCQB or OTCQX which requires that the issuer locate a sponsoring market maker.  

Market Maker Registration

A market maker is a FINRA registered broker-dealer firm that accepts the risk of holding a certain number of shares of a particular security in order to facilitate trading in that security.  Broker-dealers must register with FINRA to act as a market maker of a security.

Market Maker Regulation

Market Maker activities are regulated by the Securities and Exchange Commission (“SEC”) as well as by FINRA.  FINRA oversees registration, education and testing of market makers, broker-dealers and registered representatives.  FINRA rules governing market makers in going public transactions involve a variety of criteria.

Market Maker Compliance with SEC Rule 15c2-11 in Going Public Transactions

SEC Rule 15c2-11 requires that current public information be made available to investors. This requirement is satisfied if an issuer files a Form S-1 registration statement with the SEC. This information is initially provided in going public transactions by the market maker when it submits a Form 211 and 15c2-11 application with FINRA for a ticker symbol assignment. If the issuer has not filed a Form S-1 registration statement, it provide the information in an information and disclosure statement. FINRA and SEC Rule 15c2-11 require that the market maker have a reasonable basis for believing that the information provided by the company in its Form 211 is accurate and from reliable sources.  As such, preparation of proper disclosures is critical to the going public transaction.

FINRA Comment Process in Going Public Transactions

SEC Rule 15c2-11 l Form 211 Application

In a going public transaction, a market maker must submit a Form 211 application to FINRA to apply for the company’s trading symbol.  FINRA may render comments to the application to which the sponsoring market maker and company must respond.  Once FINRA is satisfied that the disclosures meet the requirements of SEC Rule 15c2-11, a trading symbol is assigned and the Market Maker can quote the company’s securities.  The securities of the private company going public will be quoted by the OTCMarkets on the OTCPink Sheets and investors can purchase the company’s securities through their brokers.

Form 211 Exclusivity Period for Sponsoring Market Maker

For the first 30 days after a ticker symbol assignment in a going public transaction, only the sponsoring market maker who filed the Form 211 can publish quotes of the company’s securities.  Thereafter, other market makers can publish their own quotes.

Market Maker Fees For 211 Filings

Market makers generally earn money by buying stock at a lower price than the price at which they sell it, or selling the stock at a higher price than they purchase it back.  Despite the amount of work involved in the 211 process, FINRA prohibits market makers from charging issuers fees for filing a Form 211.

Market Maker Shareholder Requirements
 in Going Public Transactions

In order to obtain FINRA approval of the Form 211, the Company going public must have enough shareholders for the sponsoring market maker to demonstrate that an active trading market can be established.  This means that prior to filing a Form 211 the company should have at least 20 non-affiliate shareholders who paid cash consideration for their shares, and have owned those shares for at least 12 months.  The private company seeking to go public should have at least 1 million shares outstanding, of which at least 250,000 are free trading shares. Unlike Form S-1, a
Form 10 registration statement will not create the free trading shares required by FINRA.

For further information about this securities law blog post, please contact Brenda Hamilton, Securities Attorney at 101 Plaza Real S, Suite 202 N, Boca Raton, Florida, (561) 416-8956, by email at [email protected] or visit www.securitieslawyer101.com.  This securities law blog post is provided as a general informational service to clients and friends of Hamilton & Associates Law Group and should not be construed as, and does not constitute, legal advice on any specific matter, nor does this message create an attorney-client relationship.  Please note that the prior results discussed herein do not guarantee similar outcomes.

Hamilton & Associates | Securities Lawyers
Brenda Hamilton, Securities Attorney
101 Plaza Real South, Suite 202 North
Boca Raton, Florida 33432
Telephone: (561) 416-8956
Facsimile: (561) 416-2855