Securities Lawyer 101 l Brenda Hamilton

Securities Lawyer 101 l Brenda Hamilton

Wednesday, November 27, 2013

The Role of Markets Makers In Going Public Transactions

The  final step in going public transactions is for the soon-to-be-public company to obtain a stock trading or ticker symbol. In order to obtain a ticker symbol, the company seeking to go public’s stock must first be listed on a national securities exchange or qualify for quotation on the OTCMarkets’ Pink Sheets, OTCQB, or OTCQX markets.  (The Over-the-Counter Bulletin Board—OTCBB—is still an option, but an unpopular one; only a handful of issuers trade there.) 
Even when the company seeking to go public has filed a Form S-1 or Form 10 registration statement with the Securities and Exchange Commission (“SEC”), a market maker must file a Form 211 pursuant to Rule 15c-211 with the Finance Industry Regulatory Authority (“FINRA”). Only a market maker can file a Form 211 with FINRA to obtain a ticker symbol assignment.

For issuers that plan to list on an exchange, the process is slightly different; with NASDAQ, oddly enough, reservation of a ticker, which is done with the exchange, is the first step. Even prior to filing a registration statement on Form S-1.
What is a Market Maker?
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 makers.
Market Maker Regulation
Market maker activities are regulated by the Securities and Exchange Commission (“SEC”) as well as by the Financial Industry Regulatory Authority (“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 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. 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.
FINRA Comment Process in Going Public Transactions
Once the market maker has submitted the Form 211, FINRA may render comments to the application. The sponsoring market maker and the company must respond to these comments. Once FINRA is satisfied that the disclosures satisfy the requirements of Rule 15c2-11, a trading symbol is assigned and the market maker can quote the company’s securities. Once this occurs, the securities can be quoted on the OTCMarkets platform and investors can purchase them through their brokers.
Form 211 Exclusivity Period for Sponsoring Market Maker
For the first 30 days after a ticker assignment in a going public transaction, only the sponsoring market maker who filed the Form 211 can publish quotes of the company’s securities. After he has done so for at least 30 days, other market makers can “piggyback,” publishing their own quotations.
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 buy it back.  FINRA prohibits them from charging issuers fees for acting as the sponsoring market maker who files a Form 211 in a going public transaction. Despite the prohibition, unscrupulous market makers find ways to circumvent FINRA’s regulations, often by funneling stock fees for 211 filings through affiliated transfer agents, payments by insiders or by insisting on sham “consulting” agreements.  Engaging in such activities compromises the entire going public transaction and places the company, its management at risk for an SEC enforcement action.
FINRA l Market Maker l Shareholder Requirements
The sponsoring market maker must demonstrate that the private company seeking to go public has sufficient shareholders to create an active trading market of its common shares.  This means that prior to filing a Form 211 the company should have at least 30 or more non-affiliate shareholders who paid cash consideration for their shares, and unless registered with the SEC on a Form S-1, those shares must have been held for at least 12 months for a non-reporting issuer and 6 months for a reporting issuer.
For further information about Form 211 and the role of the market makers in going public transactions please contact Brenda Hamilton, Securities Attorney at 101 Plaza Real S, Suite 202 N, Boca Raton Florida, (561) 416-8956, by email at This memorandum 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 and compliance advice on any specific matter, nor does this message create an attorney-client relationship. For more information concerning the rules and regulations affecting the use of Rule 144, Form 8K, FINRA Rule 6490, Rule 506 private placement offerings, Regulation A, Rule 504 offerings, SEC reporting requirements, SEC registration on Form S-1 and Form 10, Pink Sheet listing, OTCBB and OTCMarkets disclosure requirements, DTC Chills, Global Locks, reverse mergers, public shells, go public direct transactions and direct public offerings please contact Hamilton and Associates or visit
Hamilton & Associates | Securities Lawyers
Brenda Hamilton, Securities Attorney
101 Plaza Real South, Suite 202 N
Boca Raton, Florida 33432
Telephone: (561) 416-8956
Facsimile: (561) 416-2855

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