15c-211 Submissions
SEC Rule 15c-211 allows broker dealers to initiate or resume trading quotes on Over-the-Counter (“OTC”) securities not listed on the NYSE or NASDAQ by filing Form 211 to the FINRA OTC Compliance Unit. After the Form 211 is filed by the broker, a 211 Addendum Form must also be submitted. Once the application is received by FINRA it will be assigned to an auditor for review. FINRA will reply with a letter listing their questions and comments on the application and filing. At this point, it is the broker dealer’s responsibility to respond to FINRA. After FINRA receives the response, they may have further comments, or they may approve.
Broker dealers are not allowed to charge issuers for 15c211 submissions. Therefore, in order to entice a broker dealer to file a 15c211, it is recommended that the issuer refers its shareholders to the broker for stock trades.
Application Red Flags
The following are examples of red flags that require close examination by the broker-dealer to comply with Rule 15c2-11. These examples, however, may not provide firm evidence of microcap fraud or even incorrect issuer information. Brokers should scrutinize issuer information if reliable sources for the information are not found.
1. 1. Trading Suspensions.
2. 2. Concentration of ownership of the majority of outstanding, freely tradable stock.
3. 4. Large reverse stock splits.
4. 5. Companies in which assets are large and revenue is minimal without any explanation.
5. 6. Shell corporation’s acquisition of private company.
6. 7. Offerings under Rule 504 of Regulation D where one or more of the following factors are present:
◦ Little capital is raised without business purpose.
◦ The Rule 504 offering is preceded by an unregistered offering to insiders.
◦ Sales immediately following the Rule 504 offering are at substantially higher prices.
◦ A shell company and an operating company merge, which results in the operating entity becoming the surviving entity.
7. 8. Significant write-up of assets upon a company obtaining a patent or trademark for a product.
8. 9. Significant asset consists of OTC Bulletin Board or Pink Sheet companies.
9. 10. Assets acquired for shares of stock when the stock has no market value.
10. 11. Significant write-up of assets in a business combination of entities under common control.
11. 12. Unusual auditing issues.
12. 13. Extraordinary items in notes to the financial statements, e.g., unusual related party transactions.
13. 14. Suspicious financial statement or other regulatory documents.
14. 15. Broker-dealer receives substantially similar offering documents from different issuers.
15. 16. Extraordinary gains in year-to-year operations.
16. 17. Reporting company fails to file an annual report.
17. 18. Disciplinary actions against an issuer’s officers, directors, general partners, promoters, or control persons.
18. 19. Significant events involving an issuer or its predecessor, or any of its majority owned subsidiaries.
19. 20. Request to publish both bid and ask quotes for a certain issuer’s stock.
20. 21. Issuer or promoter offers to pay a “due diligence” fee.
21. 22. Regulation S transactions for domestic issuers.
22. 23. S-8 Registration stock.
23. 24. “Hot industry” microcap stocks.
24. 25. Issuer affiliates or related persons with unusual trading activity.
25. 26. Companies that change names frequently.
26. 27. Companies that change their business model frequently.
