Introduction

Effective as of September 27, 2010, FINRA Rule 6490 was implemented to regulate corporate actions such as name changes, stock splits, dividends, and other significant actions initiated by companies trading on the OTC Markets. This rule was designed to increase transparency and investor protection by requiring companies to file a Company Related Action Notification form. In a significant update, FINRA is now replacing the old filing system with a new, more efficient electronic Corporate Actions Management Platform within its existing FINRA Gateway. This new system is expected to streamline the process, allowing companies to submit forms, track updates, and respond to FINRA comments electronically.

Background on Rule 6490

FINRA Rule 6490 grants FINRA discretionary power to ensure the integrity of the market by scrutinizing corporate actions that could impact the value of publicly traded securities on OTC Markets. The rule works in conjunction with Exchange Act Rule 10b-17, which mandates timely notice of material corporate actions. Failure to provide notice could lead to regulatory complications, which Rule 6490 seeks to prevent.

Prior to this update, FINRA's role in handling corporate actions was primarily ministerial. However, the introduction of Rule 6490 has empowered FINRA to dig deeper into corporate actions, ensuring they do not pose a threat to investors or the stability of the financial market.

New Corporate Actions Management Platform

The new Corporate Actions Management Platform, accessible via the FINRA Gateway, modernizes the process for companies to report corporate actions. This electronic platform offers several advantages, including:

• The ability to submit and update corporate action notifications.
• Real-time tracking of the submission status.
• Electronic communication with FINRA, including messaging within the submission portal.
• Automated notifications when additional information or documents are requested by FINRA.
• The ability to respond to information requests in real time.

FINRA believes this platform will provide greater transparency and improve communication between the regulatory authority and reporting companies.

Rule 6490's Impact on the Corporate Action Review Process

Under Rule 6490, FINRA is empowered to reject or delay corporate action requests if they deem them deficient or potentially harmful to investors. Factors that can lead to such determinations include incomplete or inaccurate filings, a company’s failure to maintain SEC reporting compliance, ongoing regulatory actions against the company or its officers, or indications of fraudulent activity. This rigorous scrutiny means companies must ensure that their filings are accurate, complete, and timely, and be prepared to respond to detailed inquiries from FINRA.

The review process can be time-consuming. Straightforward actions may take months to complete, while companies with a history of regulatory issues may face longer delays, sometimes over a year, particularly if the company is involved in industries such as crypto or blockchain.

Conclusion

While the new Corporate Actions Management Platform offers an opportunity for improved efficiency in submitting corporate action notifications, companies should not expect the review process itself to speed up drastically. However, this digital transformation marks a step forward in increasing transparency and improving communication with FINRA. Companies planning corporate actions should prepare their records thoroughly and factor in these new procedures to avoid delays.