By Eddie Tobler, Managing General Partner at West Coast Stock Transfer Corp
The Road to Riches – Is paved with broken glass
As previously noted, the Chairman of the SEC is thoroughly interested in increasing the number of public companies in the markets. I think many of us in this space concur with him but the elephant here in the room is the torturous path to trading that is controlled by FINRA.
Whereas the pathway onto a listed exchange is significantly easier from the perspective of the Issuer, beginning trading on the OTC Markets (where many fine Issuers start) is administered under the auspices of FINRA through the 15C211 process. This does not compare favorably with the process to a listed exchange because of the party reviewing the documents submitted. Perhaps this is merely reflective of the comparative size of the Issuer going to the OTC Markets, versus the one listing on either the NASDAQ or NYSE? Or is it more likely that the quality of the review team and the desired outcome is not looked upon as favorably?
In the pathway to an exchange listing there is a true committee that takes the issuer through the process, thoroughly vets the documentation and provides valuable feedback along the way. As previously mentioned the exchanges value new issuers and want them in a position to succeed and grow, thus the endeavors are largely successful due to the hard work put forth by both parties.
This is in direct comparison to the 15C211 process through which vetting comes at the hands of the staff at FINRA. As a general rule of thumb from my experiences regardless of the size of the Issuer, or the quality of their documentation the process is long and painful. Many times I have seen the process take six months (or more) to culminate with the inception of trading. This makes me wonder are the hopes of the Chairman echoed by the SRO in charge of the gateway to the markets?
SEC Compliance gets you nowhere
Under the regulations put forth by the SEC you must comply completely with the disclosure requirements fully and clearly. This to me is for sure the best scenario as the SEC does a solid job of disclosure oversight and comment management on requisite forms of disclosure. The exception in the markets here would be the OTC Alternative reporting disclosure requirements, which lacks the rigor I would prefer for disclosure. However FINRA takes this a step further.
Within the 15C211 paperwork as the SRO responsible for administering FINRA has exclusive oversight as to the issuance of a Ticker Symbol. I find this odd and inappropriate since prior to submission of the form the Issuer must be compliant with all of the reporting requirements as dictated by the SEC. Unfortunately even if the disclosure requirements are met FINRA will still make the process as difficult and long as they can in most cases.
This is where I think that we will find the most adverse impact on Issuers desiring to begin trading in the public markets. I know that there are a laundry list of reasons for an Issuer to want to commence trading, and while I think that some of them are misguided if they are legally brought to bear and they adhere to SEC requirements I fail to see the reason that Issuers are handled in this manner. Which is why I would tend to believe that as long as FINRA remains the SRO gateway to the public trading markets we’ll never return to our historical numbers. This belief tends to be supported by the many alternatives that Issuers are now exploring such as; Tokenization, Offshore trading, or other legitimate pre-existing ATS operators (See also our friends at SPPX Secondary Market) which are not a part of the current process.
Perhaps things will change and FINRA will modernize access to the markets, review fairly and promptly, and Issuers will once again line up to be the next Ticker Symbol announced for commencement of trading. That’s highly doubtful though given the history I’ve worked through in the last twenty years, so it’s unlikely we will see any meaningful process toward the Chairman’s goals.
Disclosure: The views and opinions expressed in this article are those of the author and do not necessarily reflect the views of West Coat Stock Transfer Corp. or any of their respective affiliates. This article is provided for general informational and educational purposes only and does not constitute investment advice, a recommendation, an offer to sell, or a solicitation of an offer to buy any security, financial product, or investment strategy. The information presented is believed to be reliable but is not guaranteed as to its accuracy, completeness, or timeliness. Any forward-looking statements or opinions are subject to change without notice.
Author Bio: Eddie Tobler is an issuer and shareholder focused professional with over a decade of experience in Corporate Actions, governance and shareholder communications. Specializing in Community and Regional Banking with an emphasis on banks transitioning to the public markets, as well as those involved in M&A activity.
