FINRA Rule 11160

FINRA Rule 11160 was last amended by SR-FINRA-2010-030 effective December 15, 2010, with a prior amendment effective November 1, 1991 through SR-NASD-91-13 — and, notably, was not amended by either the 2017 T+2 or 2024 T+1 settlement cycle conformity amendments that amended both FINRA Rules 11140 and 11150 directly. Two selected notices are associated — 91-63 and 10-49.

FINRA Rule 11160 sits within the 11100 Scope of Uniform Practice Code subsection of the 11000 Uniform Practice Code, immediately following FINRA Rule 11150's ex-interest framework for flat-traded bonds and immediately preceding FINRA Rule 11170's framework for transactions in part-redeemed bonds.

What Liquidating Payments and Payments on Account of Principal Are

FINRA Rule 11160 addresses two related but distinct categories of distribution that are conceptually different from the ordinary dividend, interest, rights, and warrant distributions addressed by FINRA Rules 11140 and 11150.

A liquidating payment is a distribution made to security holders as part of the wind-down or dissolution of the issuer — when a corporation, partnership, or trust ceases operations and distributes its remaining assets to equity holders, those distributions are liquidating payments. Unlike an ordinary dividend — which represents a distribution of earnings while the issuer continues as a going concern — a liquidating payment represents a return of capital in connection with the issuer's termination, and may be made in one or more installments depending on the pace at which the issuer's assets are converted to cash and distributed.

A payment on account of principal is a distribution that reduces the outstanding principal amount of a debt instrument — as distinguished from an interest payment, which compensates the holder for the use of that principal without reducing the principal amount itself. Payments on account of principal arise in a variety of contexts: sinking fund payments, in which an issuer periodically retires a portion of an outstanding bond issue; principal paydowns on amortizing debt instruments, where each payment includes both an interest component and a principal component; and partial redemptions, where an issuer calls a portion of an outstanding issue for early redemption — a category that connects directly to FINRA Rule 11170's framework for part-redeemed bonds, the rule immediately following FINRA Rule 11160.

Why These Distributions Need an Ex-Date at All

The fundamental question FINRA Rule 11160 answers is the same fundamental question FINRA Rules 11140 and 11150 answer for their respective categories of distribution — when a security holder is entitled to receive a distribution as of a record date, but the security continues trading in the secondary market around that record date, which party to a transaction executed near the record date — the buyer or the seller — is entitled to the distribution?

For liquidating payments, this question matters because a security that is the subject of an ongoing liquidation may continue to trade in the secondary market throughout the liquidation process — a buyer purchasing shares of a company in liquidation needs to know whether their purchase entitles them to an upcoming liquidating distribution or whether that distribution belongs to the seller. For payments on account of principal, the question matters for substantially similar reasons — a buyer purchasing a bond that is about to receive a principal paydown or partial redemption payment needs to know whether that payment belongs to them as the new holder or to the seller as the prior holder of record.

Without an ex-date mechanism for these distribution types, the same kind of uncertainty and potential for business disputes that FINRA Rule 11110 identifies as a core problem the Uniform Practice Code addresses would arise specifically in the context of liquidating distributions and principal payments — precisely the kind of uncertainty FINRA Rule 11160 forecloses by extending the established FINRA Rule 11140 and FINRA Rule 11150 formulas to these distribution types.

The Cross-Reference Structure: Why FINRA Rule 11160 Has No Independent Formula

FINRA Rule 11160's defining structural characteristic is that it establishes no independent ex-date formula of its own — it operates entirely through incorporation by reference of the formulas FINRA Rules 11140 and 11150 already establish. This cross-reference structure reflects a deliberate drafting choice with two significant implications.

First, it means that the specific ex-date formula that applies to a liquidating payment or principal payment under FINRA Rule 11160 depends on which underlying security type is involved. For a liquidating payment on a stock — an equity security — the FINRA Rule 11140 formula applies, meaning the relevant provisions of FINRA Rule 11140(b) — distinguishing distributions of less than 25 percent of the security's value from those of 25 percent or greater, and addressing stock dividends and splits relating to ADRs and foreign securities — would govern the ex-date determination for that liquidating payment, just as they would for an ordinary dividend on that same stock. For a principal payment on a bond traded flat — a debt instrument — the FINRA Rule 11150 formula applies, meaning the record-date-anchored or payment-date-anchored provisions of FINRA Rule 11150(a) would govern, just as they would for an ordinary interest payment on that same bond.

Second, and as a direct consequence of this cross-reference structure, FINRA Rule 11160 automatically incorporates any future amendments to FINRA Rules 11140 and 11150 without itself needing to be amended. This explains why FINRA Rule 11160's amendment history shows no amendment corresponding to either the 2017 T+2 settlement cycle conformity amendment or the 2024 T+1 settlement cycle conformity amendment, even though both of those amendments substantively changed the formulas in FINRA Rules 11140 and 11150 that FINRA Rule 11160 incorporates by reference. When FINRA Rule 11140(b)(1)'s ex-dividend date formula shifted from the first business day preceding the record date under the T+2-era rule to the record date itself under the current T+1-era rule, FINRA Rule 11160's ex-liquidating-payment-date formula for stocks shifted correspondingly — automatically, by virtue of the cross-reference, without any need for FINRA to separately amend FINRA Rule 11160's text. This is an efficient drafting technique: rather than maintaining duplicate formulas in FINRA Rule 11160 that would need to be kept in sync with FINRA Rules 11140 and 11150 through parallel amendments each time the settlement cycle changes, FINRA Rule 11160 simply points to those rules' formulas directly, ensuring permanent consistency without ongoing maintenance.

The 1991 and 2010 Amendments

FINRA Rule 11160's two confirmed amendments — SR-NASD-91-13 effective November 1, 1991 and SR-FINRA-2010-030 effective December 15, 2010 — correspond to broader amendment waves that affected multiple rules within the 11100 subsection simultaneously, as this dictionary's entries on FINRA Rules 11120, 11140, 11150, and others have confirmed.

SR-NASD-91-13 effective November 1, 1991 was part of the broader 1991 NASD Uniform Practice Code modernization confirmed in Notice to Members 91-63 — the same notice that, as discussed in FINRA Rule 11120's entry, addressed amendments to the definitions provisions and reorganized several sections of the predecessor NASD Uniform Practice Code. Notice to Members 91-63 specifically confirms that the NASD amended what is now FINRA Rule 11160 to add a reference to what is now FINRA Rule 11150 to the rule's then-existing reference to what is now FINRA Rule 11140 — reflecting that liquidating payments may be applied to both equity and debt, and therefore that FINRA Rule 11160's formula needed to cross-reference both the equity-focused FINRA Rule 11140 and the debt-focused FINRA Rule 11150, rather than only one of the two. This 1991 amendment is therefore the origin of FINRA Rule 11160's current dual cross-reference structure — before this amendment, the rule apparently cross-referenced only the equity-focused predecessor to FINRA Rule 11140, and the 1991 amendment added the debt-focused cross-reference to reflect the reality that principal payments — a category specific to debt instruments — fall within FINRA Rule 11160's scope.

SR-FINRA-2010-030 effective December 15, 2010 represents the transfer of FINRA Rule 11160, along with the rest of the 11100 subsection, into the Consolidated FINRA Rulebook — updating cross-references from the predecessor NASD rule numbering to the current FINRA Rule 11140 and FINRA Rule 11150 numbering, without altering the substantive cross-reference structure that the 1991 amendment had established.

FINRA Rule 11160 as a Model of Regulatory Economy

FINRA Rule 11160 — at a single sentence, the shortest rule examined in this dictionary's coverage of the 11100 subsection — exemplifies a broader principle of regulatory drafting economy that recurs throughout the Uniform Practice Code. Rather than treating liquidating payments and principal payments as requiring their own freestanding ex-date framework with their own formulas, definitions, and late-information fallback provisions — which would essentially duplicate large portions of FINRA Rules 11140 and 11150 — FINRA Rule 11160 simply identifies these payment types as falling within the existing FINRA Rule 11140 and FINRA Rule 11150 frameworks, applying whichever of those two rules' formulas corresponds to the underlying security type.

This approach mirrors, on a smaller scale, the relationship between FINRA Rule 11120(g) and FINRA Rule 11121 discussed earlier in this dictionary's coverage of the 11100 subsection — different rules within the Uniform Practice Code addressing closely related concepts through cross-reference and incorporation rather than independent restatement. The cumulative effect across the 11100 subsection is a framework in which the foundational ex-date concept, defined once in FINRA Rule 11120(d), is then operationalized through a small number of detailed formula-providing rules — principally FINRA Rules 11140 and 11150 — with additional distribution categories such as liquidating payments and principal payments under FINRA Rule 11160 simply directed to the appropriate existing formula rather than requiring their own.

Connection to FINRA Rules 11110, 11120, 11140, 11150, and 11170

FINRA Rule 11160 connects to FINRA Rule 11110 as the source of the UPC Committee's general interpretive authority that underlies the FINRA Rule 11140 and FINRA Rule 11150 formulas FINRA Rule 11160 incorporates. It connects to FINRA Rule 11120(d) — whose foundational ex-date definition is the conceptual basis for FINRA Rule 11160's ex liquidating payments terminology. It connects directly and indispensably to FINRA Rule 11140 — whose formula governs FINRA Rule 11160's application to liquidating payments and principal payments in stocks, and which automatically carries forward into FINRA Rule 11160 any future amendments to that formula. It connects equally directly and indispensably to FINRA Rule 11150 — whose formula governs FINRA Rule 11160's application to liquidating payments and principal payments in bonds and similar evidences of indebtedness traded flat, with the same automatic-incorporation effect. And it connects to FINRA Rule 11170 — the immediately following rule addressing transactions in part-redeemed bonds, a category of security directly implicated by the payments on account of principal that FINRA Rule 11160 addresses, since a part-redeemed bond is, definitionally, a bond that has already received one or more principal payments of the type FINRA Rule 11160 governs the ex-date treatment of.

Liquidating Payments on a Stock: Size Decides the Formula

When FINRA Rule 11160 sends a liquidating payment on a stock to FINRA Rule 11140, the first question is the size of the payment. FINRA Rule 11140(b)(1) covers cash dividends or distributions which are less than 25 percent of the value of the subject security. FINRA Rule 11140(b)(2) covers cash dividends or distributions which are 25 percent or greater of the value of the subject security, and for those the ex-dividend date is the first business day following the payable date.

Consider Harlow Industries, which is winding up its business. Its board declares a first liquidating payment of $10 per share while the shares are worth $40. The payment is exactly 25 percent of the value of the shares. It is not less than 25 percent, so paragraph (b)(1) does not apply; it is 25 percent or greater, so paragraph (b)(2) does. The payment is payable on a Thursday and the Friday is a business day, so the shares go ex the liquidating payment on the Friday, the first business day following the payable date.

A liquidating payment made in installments is sized one installment at a time, because each installment is a distribution in its own right. Suppose Harlow later declares a second installment of $2 per share while the shares are worth $28. That installment is about 7 percent of the value of the shares, which is less than 25 percent, so paragraph (b)(1) supplies its date. The size of the first installment has no bearing on it.

The label on a cash payment does not change the formula. The FINRA Rule 11140(b) provisions govern a liquidating payment on a stock just as they would govern an ordinary dividend on that same stock. So a cash liquidating payment and an ordinary cash dividend of the same size relative to the value of the stock are dated by the same paragraph of FINRA Rule 11140(b).

Smaller Liquidating Payments and Late Information

For a liquidating payment of less than 25 percent of the value of the stock, FINRA Rule 11140(b)(1) works from the record date, provided the definitive information is received sufficiently in advance of the record date. The ex-dividend date is the record date if the record date falls on a business day, or the first business day preceding the record date if the record date falls on a day designated by the Committee as a non-delivery date.

Carver Mills, which is in liquidation, declares a liquidating payment of $1.50 per share while its shares are worth $30, which is 5 percent of their value. Definitive information reaches the Committee weeks ahead. The record date falls on a Monday that the Committee has designated a non-delivery date, and the first business day before that Monday is the preceding Friday. The shares go ex the liquidating payment on that Friday.

Now suppose the definitive information about the Carver Mills payment reaches the Committee too late for paragraph (b)(1) to be applied. FINRA Rule 11140(c) then governs: the date designated is the first business day which, in the opinion of the Committee, is practical having regard to the circumstances pertaining. The Committee's judgment of what is practical takes the place of the paragraph (b)(1) formula.

Who Sets the Date for a Stock in Liquidation

FINRA Rule 11140(a) provides two routes to an ex-date. Under paragraph (a)(1), it is the day specifically designated by the Committee after definitive information concerning the declaration and payment of a dividend has been received at the office of the Committee. Under paragraph (a)(2), it is the day specified by the appropriate national securities exchange which has received definitive information in accordance with SEA Rule 10b-17. Applied through FINRA Rule 11160, the same two routes serve a liquidating payment on a stock.

So where the shares of a company in liquidation are listed on a national securities exchange, and that exchange has received definitive information about a liquidating payment in accordance with SEA Rule 10b-17, the shares go ex the payment on the day the exchange specifies. Where the shares are not listed on any exchange, the Committee designates the day once definitive information has reached its office.

Both routes depend on definitive information concerning the declaration and payment of the liquidating payment. A plan of liquidation which says only that the company will distribute its remaining assets as they are sold, with amounts and dates to be announced, does not declare any particular payment. Until a payment has been declared there is no definitive information concerning its declaration and payment, so no ex-date can be designated for it by either route.

Liquidating Payments on American Depositary Receipts

FINRA Rule 11140(b)(3) provides that, in respect to stock dividends and splits relating to American Depositary Receipts (ADRs) and foreign securities, the ex-dividend or ex-warrants date shall be designated by the Committee. That paragraph is confined to stock dividends and splits. A liquidating payment in cash on an ADR is neither. It is a cash distribution, and paragraphs (b)(1) and (b)(2) cover cash dividends or distributions according to whether they are less than 25 percent, or 25 percent or greater, of the value of the subject security. So paragraph (b)(3) does not supply the date of a cash liquidating payment on an ADR; paragraph (b)(1) or (b)(2) does, according to its size.

Payments on Account of Principal on a Flat-Traded Bond

FINRA Rule 11150(a) dates a flat-traded bond's ex-date from the record date where one has been fixed, and from the payment date where none has. The Uniform Practice Code's definition of record date expressly reaches principal payments. Under FINRA Rule 11120(f), the record date is the date fixed by the trustee, registrar, paying agent or issuer for the purpose of determining the holders of bonds and other securities entitled to receive dividends, interest or principal payments or any other distributions.

Suppose the trustee of a flat-traded bond fixes a date to identify the holders entitled to a coming payment on account of principal. That date is a record date in the Code's sense, although the payment is of principal rather than interest, and paragraphs (a)(1) and (a)(2) work from it. Paragraph (a)(1) makes the bond ex on the record date if the record date falls on a business day; paragraph (a)(2) makes it ex on the first business day preceding the record date if the record date falls on a day other than a business day.

Where no record date has been fixed for the principal payment, paragraph (a)(3) applies, and the bond is ex on the first business day preceding the date on which the payment is to be made. Take a flat-traded bond on which a payment on account of principal is due on a Wednesday, with no record date fixed and notice made public well in advance. If the Tuesday is a business day, the bond goes ex the principal payment on the Tuesday.

Flat-Traded Bonds: Income Bonds, Large Payments and Late Notice

Whether a bond is traded flat can depend on its type. Under FINRA Rule 11620(e), income bonds shall be dealt in flat even though such bonds are paying interest, except that where a certain fixed rate is guaranteed in the indenture and provision is made for additional contingent payment, they are dealt in and interest at the fixed rate guaranteed. An income bond with no guaranteed fixed rate is therefore dealt in flat, and a payment on account of principal on it is dated under the FINRA Rule 11150 formula.

Suppose the issuer of such an income bond fixes a Sunday, which is not a business day, as the record date for a payment on account of principal. Notice is made public well in advance, and the first business day before that Sunday is the Friday. Under paragraph (a)(2), which applies where the record date falls on a day other than a business day, the bond goes ex the principal payment on the Friday.

FINRA Rule 11150 contains no test of size. Where the issuer of a flat-traded bond makes a large payment on account of principal, retiring a large part of each bond's principal, the ex-date still comes from paragraph (a), from the record date or the payment date as the case may be. The 25 percent distinction belongs to FINRA Rule 11140(b) and is not part of the FINRA Rule 11150 formula.

FINRA Rule 11150(b) supplies the fallback where notice of payment is not made public sufficiently in advance of the record date or the payment date, as the case may be, to permit the bond to be dealt in ex in accordance with paragraph (a). The bond is then dealt in ex on the first business day which, in the opinion of the Committee, is practical having regard to the circumstances pertaining. Paragraph (b) is written in terms of notice of payment of interest. FINRA Rule 11160 applies the FINRA Rule 11150 formula to principal payments rather than giving them a late-information provision of their own, so a principal payment on a flat-traded bond announced too late for paragraph (a) is dealt in ex on the day paragraph (b) produces.

Which Transactions and Securities the Rule Reaches

FINRA Rule 11160 applies to all transactions except cash transactions. The exception is for the cash transaction alone. Suppose three trades in the same flat-traded bond are struck on the day it goes ex a payment on account of principal: one regular way, one seller's option and one for cash. The regular way contract and the seller's option contract are ex the principal payment under FINRA Rule 11160. The cash trade is excepted from the rule.

The rule reaches stocks, bonds or similar evidences of indebtedness. A debt instrument does not have to be called a bond to fall within it. An instrument that evidences the issuer's indebtedness in the same way as a bond, such as a note, is a similar evidence of indebtedness, and a payment on account of principal on it is within the rule.

Transactions Outside the Uniform Practice Code

FINRA Rule 11160 is part of the Uniform Practice Code, so it governs only transactions the Code covers. Under FINRA Rule 11100(a), over-the-counter secondary market transactions in securities between members are subject to the Code, with listed exceptions. One exception is transactions in municipal securities as defined in Section 3(a)(29) of the Exchange Act. Two members who trade a municipal bond shortly before a payment on account of principal are therefore outside FINRA Rule 11160 for that trade.

Another exception is transactions in securities between members which are compared, cleared or settled through the facilities of a registered clearing agency, except to the extent that the rules of the clearing agency provide that rules of other organizations shall apply. For a trade in the shares of a company in liquidation that settles through a registered clearing agency, FINRA Rule 11160 applies only to the extent the clearing agency's rules provide for other organizations' rules to apply.

After a Principal Payment: Part-Redeemed Bonds

Once part of a bond's principal has been paid, FINRA Rule 11170 governs how later contracts in the bond are priced. In transactions in bonds which have been redeemed or paid in part, such bonds are designated part-redeemed bonds. The settlement price of contracts in part-redeemed bonds is determined by multiplying the contract price by the original principal amount, and contracts are made on the same basis.

Suppose a bond originally issued with $1,000 of principal has had $400 of that principal paid, leaving $600 outstanding. Two members contract for the bond at a contract price of 58 percent. The settlement price is 58 percent of the original $1,000 of principal, which is $580. It is not calculated on the $600 still outstanding.

Because such a bond is designated part-redeemed, FINRA Rule 11220 bears on the confirmation. Confirmations or comparisons include, in addition to an adequate description of the security, the price at which the transaction was made and any other information deemed necessary to ensure that the buyer and seller agree as to details of the transaction, and that other information should include, if applicable, such phrases as part-redeemed. A confirmation of a contract in the bond after part of its principal has been paid should therefore carry the phrase part-redeemed.

Trade Dates and Failed Deliveries Around the Ex-Date

Under FINRA Rule 11120(d), the ex-date is the date on and after which the security is traded without a specific dividend or distribution. The ex-date itself is therefore the first day of trading without the payment. A regular way trade in a flat-traded bond struck on the day the bond goes ex a principal payment is a trade without that payment.

Whether a trade was made before the ex-date or on it depends on its trade date, and FINRA Rule 11120(g) fixes the trade date for a transaction between time zones. Where the bid or offer is accepted in a later time zone than that of the originator, the correct trade date is the day on which the dealer in the later time zone accepts the trade. FINRA Rule 11121 applies this to a dealer in an Eastern city who leaves a bid or offering with a dealer in a Western city, good until the close of the Western dealer's business day. Suppose the shares of a company in liquidation go ex a liquidating payment on a Tuesday. The Western dealer accepts the Eastern dealer's bid on the Monday, and the acceptance reaches the Eastern dealer on the Tuesday. The trade date is the Monday, so the trade was made before the ex-date.

A failed delivery does not undo the contract. Under FINRA Rule 11100(c), in trades between members, failure to deliver the securities sold on or after the settlement date does not effect a cancellation of the contract. The remedy is provided by FINRA Rules 11810 and 11820 unless the parties mutually consent to cancel the trade, and the party in default is liable for any damages which may accrue. A selling member that fails to deliver shares before a liquidating payment's record date cannot treat the contract as cancelled because the record date has passed.

Due-Bill Checks, Committee Rulings and When-Issued Contracts

FINRA Rule 11630(d) provides that due-bill checks for a cash distribution shall accompany securities delivered too late for transfer on or before the record date. Where a liquidating payment on a stock is 25 percent or greater of its value, the stock goes ex only after the payable date. A regular way trade made after the record date but before the ex-date is then made before the stock trades ex the payment, and its delivery, on the first business day following the date of the trade, comes after the record date and so too late for transfer on or before it. A due-bill check for the liquidating payment accompanies that delivery.

FINRA Rule 11110 gives the Committee power to issue interpretations or rulings with respect to the applicability of the Code to situations in which there is no substantial disagreement as to the facts involved. Suppose two members agree on every fact about a payment an issuer is making on its bonds but disagree whether it is a payment on account of principal within FINRA Rule 11160. That is a question of how the Code applies, and the Committee may rule on it. If the members disagree about the facts themselves, the dispute is outside that power.

Under FINRA Rule 11130(b)(2), when, as and if issued or distributed transactions between members in income or contingent interest securities of new or reorganized companies are traded flat and carry all payments that may be made or declared in connection with the new securities from the effective date of the plan. If any payment is made or declared in connection with those securities before the settlement date, transactions made on and after the ex date for that payment carry only payments made or declared from that ex date. The rule says any payment, so it reaches a payment on account of principal declared on such securities: a when-issued contract made on or after that payment's ex date does not carry it.

Common Errors in Applying FINRA Rule 11160

Several errors recur when the rule is applied. One is to date every liquidating payment on a stock from the record date, when a payment of 25 percent or more of the value of the stock goes ex on the first business day following the payable date. Another is to look to FINRA Rule 11140(b)(3) for a cash liquidating payment on an ADR, when that paragraph deals only with stock dividends and splits. A third is to apply FINRA Rule 11140's 25 percent distinction to a principal payment on a flat-traded bond, when FINRA Rule 11150 contains no size test. A fourth is to treat a cash transaction as within the rule, when cash transactions are the one class of transaction it excepts. A fifth is to settle a contract in a bond that has been paid in part on the principal still outstanding, when FINRA Rule 11170 uses the original principal amount.

Reporting a Liquidation to FINRA Under FINRA Rule 6490

FINRA Rule 11160 makes transactions in stocks and bonds ex a liquidating payment in accordance with the formulas of FINRA Rules 11140 and 11150. A separate rule deals with the documents an issuer sends FINRA about its company actions, a liquidation among them. FINRA Rule 6490 applies to issuers with a class of publicly traded, non-exchange listed, securities in the OTC market. For those issuers, FINRA's Operations Department, which the rule calls the Department, reviews and processes documents related to announcements of company actions to facilitate the orderly trading and settlement of OTC securities. FINRA Rule 6490 does not set an ex-date. The dates still come from FINRA Rule 11160 and the formulas it adopts.

The rule sorts company actions into two groups. SEA Rule 10b-17 Actions include dividends or other distributions in cash or kind, stock splits or reverse stock splits, and rights or other subscription offerings. Other Company-Related Actions include, among other things, mergers, acquisitions, dissolutions or other company control transactions, and bankruptcy or liquidations. A liquidating payment is a distribution made to security holders, and a liquidating payment in cash is a distribution in cash. The Supplementary Material requires OTC issuers to give FINRA written notice, within the time frames of SEA Rule 10b-17, before a dividend or any other distribution in cash or in kind. An issuer, or another duly authorized representative of the issuer, may ask FINRA to process documentation for either kind of action by submitting a signed request.

A request for an Other Company-Related Action must be complete and submitted no later than 10 calendar days before the effective date of the company action. Suppose Brennan Foods, whose shares are not listed on any exchange and are traded in the OTC market, resolves to dissolve. Its request to process documentation for the dissolution reaches the Department six calendar days before the dissolution's effective date. The request is late, and a late request is subject to an additional fee before it is processed.

Late Notice of a Liquidating Payment

A request to process documentation for an SEA Rule 10b-17 Action must be complete and submitted to the Department no later than the time frame specified in SEA Rule 10b-17. A request that misses it is deemed late. The fee scale is in FINRA Rule 6490(c): $200 for a timely notification; for a late one, $1,000 if it is submitted at least 5 calendar days before the corporate action date, $2,000 if it is submitted at least 1 calendar day before that date, and $5,000 if it is submitted on or after it.

Suppose Brennan Foods, now in liquidation, declares a cash liquidating payment. It submits its request to process documentation for the payment after the SEA Rule 10b-17 time frame has passed, three calendar days before the corporate action date. Three calendar days is less than five but at least one, so the fee is $2,000.

Nothing in FINRA Rule 6490 alters an issuer's obligations under SEA Rule 10b-17, and FINRA's processing of documentation related to a late request does not relieve the issuer of any violations under that rule. If Brennan's late submission violated SEA Rule 10b-17, FINRA's processing of its request does not relieve Brennan of that violation.

The Supplementary Material adds a point about unpaid fees. Notwithstanding the timeliness of the submission or the failure to pay applicable fees, FINRA will make its best efforts to process documentation related to SEA Rule 10b-17 Actions that are not otherwise deemed incomplete or deficient, because of the critical nature of this information to the marketplace. FINRA may process that documentation even if a fee remains unpaid, but it accumulates all unpaid SEA Rule 10b-17 Action fees associated with the issuer's OTC symbol.

Unpaid Fees, Reports From Third Parties and Lapsed Requests

Accumulated fees stay with the symbol. Regardless of the current ownership status or transaction history of an OTC issuer, FINRA will not process documentation related to a Voluntary Symbol Request Change until all unpaid accumulated late fees for the associated OTC symbol have been paid. Suppose Brennan's late fees for its liquidating payments are never paid, and the company, after a new owner takes control of it, submits a Voluntary Symbol Request Change. The change is not processed until those fees are paid, even though the company has changed hands.

Sometimes FINRA hears of a company action from a third party other than the issuer, such as DTCC, a foreign exchange or regulator, a member, or an associated person. FINRA then requests that the third party contact the issuer about its obligations under SEA Rule 10b-17 or other rules, and instruct the issuer to contact FINRA directly to provide notice and complete the forms. FINRA may, in its discretion, review and process the action on the third party's information when it believes that is necessary for the protection of the market and investors, or when it has been unable to obtain notification from the issuer. So a member that learns of a coming liquidating payment on shares it trades, and tells FINRA, will be asked to have the issuer contact FINRA. FINRA may act on the member's information itself where it believes that is necessary to protect the market and investors, or where it has been unable to obtain notification from the issuer.

The Department may ask for additional information or documentation to review a request and verify the accuracy of what was submitted. Where the requesting party does not, in the Department's reasonable determination, sufficiently respond within 90 calendar days following the Department's request, the request is deemed lapsed and is closed. Suppose the Department asks Brennan for further documents supporting a liquidating payment, and 100 calendar days later Brennan has not, in the Department's reasonable determination, sufficiently responded. Its request is deemed lapsed and is closed.

When FINRA Declines to Process a Liquidation Notice

The Department may deem an action deficient. It may then determine that it is necessary for the protection of investors, the public interest and to maintain fair and orderly markets that the documentation will not be processed, and the request is then closed, subject to the provisions on written notice and appeal. It makes that determination solely on the basis of one or more of five factors: (1) FINRA staff reasonably believe the forms and supporting documentation may not be complete, accurate or with proper authority; (2) the issuer is not current in its reporting requirements, if applicable, to the SEC or other regulatory authority; (3) FINRA has actual knowledge that the issuer or persons connected with it or the action are the subject of a pending, adjudicated or settled regulatory action or investigation, or of a civil or criminal action related to fraud or securities laws violations; (4) a regulator or self-regulatory organization has provided information to FINRA, or FINRA otherwise has actual knowledge, indicating that the issuer or such persons may be potentially involved in fraudulent activities related to the securities markets or pose a threat to public investors; and (5) there is significant uncertainty in the settlement and clearance process for the security.

Suppose Brennan has fallen behind with the reports it is required to file with the SEC when it submits its request for a liquidating payment. Factor (2) is present, so the Department may determine that the documentation will not be processed. A deficiency determination cannot rest on a ground outside the list. A view that the board was unwise to liquidate the company, or that the payment is too small to matter, is not one of the five factors, so it cannot be the basis of a deficiency determination.

If the Department finds a request deficient, FINRA staff must give the requesting party written notice. The notice must state the specific factor or factors that caused the request to be deemed deficient, and the requesting party may appeal.

Appealing a Deficiency Determination

A requesting party may appeal a determination made under paragraph (d)(3) to a three-member subcommittee composed of current or former industry members of FINRA's Uniform Practice Code Committee. The appeal is made in writing by electronic mail, unless the Adjudicator orders another method of service, within seven calendar days after service of the notice. If the requesting party does not file a written appeal within that time, the Department's determination constitutes final action by FINRA.

Suppose the Department's notice that Brennan's request for a liquidating payment is deficient is served on the 3rd of a month, and Brennan sends its written appeal on the 12th. That is nine calendar days after service, more than seven, so the Department's determination stands as final action by FINRA.

The written request must be accompanied by proof of payment of the non-refundable Action Determination Appeal Fee, which FINRA Rule 6490(c) sets at $4,000. It must also set forth with specificity any and all defenses to the Department's determination.

While an Appeal Is Pending

An appeal to the subcommittee operates to stay the processing of the company-related action. The requested action is not processed while the requesting party requests an appeal or while the appeal is pending. So while Brennan's appeal is pending, the Department does not process the documentation for the liquidating payment, even if Brennan asks it to go ahead in the meantime.

Once a written appeal has been received, the requesting party may submit additional supporting written documentation by electronic mail, unless the Adjudicator orders another method of service, up until the time the subcommittee considers the appeal. If Brennan obtains a further supporting document after filing its appeal, it may send it by electronic mail at any time before the subcommittee considers the appeal.

The Subcommittee's Determination

The subcommittee convenes once each calendar month to consider all appeals received under the rule during the prior month. It renders a determination within three business days following the day it considers the appeal. An appeal from Brennan received in May is therefore considered at the subcommittee's June meeting, and the determination follows within three business days of that meeting.

The subcommittee's determination constitutes final action by FINRA. It does not constitute an estoppel as to FINRA, and it does not bind FINRA in any subsequent administrative, civil or disciplinary proceeding. So if the subcommittee overturns the deficiency determination and Brennan's liquidating payment is processed, FINRA is not bound by that determination if it later brings a disciplinary proceeding concerning the same matters.

Open Orders When a Stock Goes Ex a Liquidating Payment

On the day a stock is quoted ex a liquidating payment, FINRA Rule 5330 affects open orders on a member's books. A member holding an open order from a customer or another broker-dealer must, before executing the order or permitting it to be executed, reduce, increase or adjust its price and/or number of shares by an amount equal to the dividend, payment or distribution, on the day that the security is quoted ex-dividend, ex-rights, ex-distribution or ex-interest. The exception is a cash dividend or distribution of less than one cent. The rule speaks of a payment or distribution, not only of a dividend, and a liquidating payment is a distribution made to security holders.

The rule has exemptions. It does not apply to orders governed by the rules of a registered national securities exchange, to open stop orders to buy, to open sell orders, or to orders in securities whose issuer has not reported the dividend, payment or distribution under SEA Rule 10b-17.

Suppose a member holds a customer's open limit order to buy shares of a company in liquidation at $25.50. The order is not marked "Do Not Reduce" and is not governed by the rules of an exchange, and the issuer has reported a cash liquidating payment of $1.50 per share under SEA Rule 10b-17. On the day the shares are quoted ex the payment, the member reduces the order's price by $1.50, to $24.00, before executing it or permitting it to be executed.

SEA Rule 10b-17 and When Notice of a Liquidating Payment Is Due

Several of the processing provisions above turn on the time frame of SEA Rule 10b-17. FINRA Rule 6490's Supplementary Material states that, in accordance with the time frames specified in SEA Rule 10b-17, OTC issuers must provide FINRA with written notice prior to a dividend or any other distribution in cash or in kind. SEA Rule 10b-17 itself makes it a manipulative or deceptive device or contrivance for an issuer of a class of publicly traded securities to fail to give notice, in accordance with the rule, of a dividend or other distribution in cash or in kind, except an ordinary interest payment on a debt security, but including a dividend or distribution of any security of the same or another issuer.

The time frame is in paragraph (b)(1). Under that paragraph, notice is deemed to have been given in accordance with the rule if it is given no later than 10 days prior to the record date involved and includes the items the paragraph lists. The rule's text names the National Association of Securities Dealers, Inc. as the body the notice is given to. Paragraph (b)(1) allows a later date only in the case of a rights subscription or other offering where 10 days advance notice is not practical: on or before the record date, and in no event later than the effective date of the registration statement to which the offering relates. So under paragraph (b)(1), notice of a dividend or other distribution in cash is due no later than 10 days prior to the record date.

Suppose Brennan Foods, in liquidation and with its shares traded in the OTC market, declares a cash liquidating payment with a record date of June 15 and a payment date of July 10, and its notice reaches FINRA on June 11. The notice came four days before the record date, short of the 10 days the rule requires, so it was not given within the time frame of paragraph (b)(1). The payment date being almost a month away does not change that, because the 10 days are counted back from the record date, not from the payment date.

The rule reaches distributions in kind as well as in cash, and it expressly includes a distribution of any security of the same or another issuer. So if Brennan, in winding up, distributes to its shareholders shares it holds in another company, that distribution is within SEA Rule 10b-17, and notice of it under paragraph (b)(1) is due no later than 10 days prior to its record date, as for a cash liquidating payment.

What a Notice of a Liquidating Payment Must Contain

Paragraph (b)(1) also lists what the notice must include. Among the items are the title of the security to which the declaration relates, the date of declaration, the record date, and the date of payment or distribution. For a distribution in cash, the notice gives the amount of cash to be paid or distributed per share. For a distribution in a security of another issuer, it gives the name of that issuer and the title of the security, the amount to be paid or distributed and the rate of the distribution. The notice also gives the method of settlement of fractional interests and details of any condition which must be satisfied, or Government approval which must be secured, to enable payment of the distribution.

The per-share amount has one exception. If exact per-share cash distributions cannot be given because of existing conversion rights which may be exercised during the notice period and which may affect the per-share cash distribution, a reasonable approximation of the per-share distribution may be provided, so long as the actual per-share distribution is subsequently provided on the record date. Suppose Brennan has convertible preferred stock outstanding whose holders may convert into common shares during the notice period, which would change the cash each common share receives from a liquidating payment of a fixed total. If those conversion rights mean the exact per-share amount cannot be given, its notice may state a reasonable approximation of the per-share amount, and the actual per-share amount must then be provided on the record date.

Suppose instead that Brennan's liquidating payment can be made only once the sale of its last factory has closed. That is a condition which must be satisfied to enable payment of the distribution, so the notice must include details of it.

Exchange-Listed Issuers and the Notice

Paragraph (b) offers two other routes. Notice is also deemed given in accordance with the rule where it is given in accordance with procedures of the national securities exchange or exchanges upon which a security of the issuer is registered pursuant to section 12 of the Securities Exchange Act, if those procedures contain requirements substantially comparable to those of paragraph (b)(1). And the Commission may, upon written request or upon its own motion, exempt an issuer from compliance with paragraph (b)(1), either unconditionally or on specified terms or conditions.

So a company in liquidation whose shares are registered on a national securities exchange, and which gives notice of a liquidating payment in accordance with that exchange's procedures, has given notice in accordance with SEA Rule 10b-17 if those procedures contain requirements substantially comparable to paragraph (b)(1).

Processing Fees Are Not Refunded

FINRA Rule 6490(c) requires the Requesting Party to pay non-refundable fees for the review and processing of documentation related to an SEA Rule 10b-17 Action and Other Company-Related Action. Suppose Brennan submits a timely request to process documentation for a cash liquidating payment and pays the fee. Before the Department processes the documentation, Brennan's board rescinds the payment and Brennan withdraws its request. The fee is not refunded, because the rule makes the fees for review and processing non-refundable.

Examination Relevance and Key Takeaways

FINRA Rule 11160 is tested on the Series 7 and Series 24 examinations as the rule extending the FINRA Rule 11140 and FINRA Rule 11150 ex-date formulas to liquidating payments and payments on account of principal — a rule notable for its brevity and its pure cross-reference structure.

The key points to retain are these: FINRA Rule 11160 consists of a single sentence providing that all transactions except cash transactions in stocks, bonds, or similar evidences of indebtedness shall be ex liquidating payments or payments on account of principal in accordance with the formula set forth in FINRA Rules 11140 and 11150; a liquidating payment is a distribution made in connection with an issuer's wind-down or dissolution, while a payment on account of principal is a distribution that reduces a debt instrument's outstanding principal — both categories distinct from ordinary dividends and interest payments; the applicable formula depends on the underlying security type — the FINRA Rule 11140 formula for stocks, including its size-based provisions and its provision for stock dividends and splits relating to ADRs and foreign securities, and the FINRA Rule 11150 formula for bonds and similar evidences of indebtedness traded flat; FINRA Rule 11160's pure cross-reference structure means it automatically incorporates any future amendments to FINRA Rules 11140 and 11150 without itself requiring amendment — explaining why FINRA Rule 11160 was not amended by either the 2017 T+2 or 2024 T+1 settlement cycle conformity amendments that directly amended both of those rules; the rule's current dual cross-reference to both FINRA Rule 11140 and FINRA Rule 11150 originated in the SR-NASD-91-13 amendment confirmed in Notice to Members 91-63, which added the debt-focused cross-reference to reflect that liquidating payments may be applied to both equity and debt; and the rule was last amended December 15, 2010 through SR-FINRA-2010-030, with a prior amendment effective November 1, 1991 through SR-NASD-91-13, and two selected notices — 91-63 and 10-49.