How to Follow the SRO Listing Rules

An SRO is a self-regulatory organization. In American securities law, the Securities and Exchange Commission (SEC) is the SRO that creates and enforces securities listing rules that all businesses must follow. These rules vary depending upon the stock exchange in which a corporation chooses to list its stock. Typically, corporate attorneys are responsible for ensuring that all SRO listing rules are followed.

Instructions

Difficulty: Challenging

Things You’ll Need:

• Corporate attorney

1. Review the members of your corporation's board of directors. SEC NASDAQ rules require that a majority of each board's directors be "independent." This means that members of the board of directors may not have any conflicting interests (such as owning a company that the corporation does business with) that could influence the company.
2. Appoint a committee of non-interested board members to investigate any potential conflicts of interest by another board member. SEC rules require this committee to review all transactions relating to the potential conflict and report back to the rest of the board with its findings.
3. Create a corporate code of conduct that covers all executives. This code must follow the SEC's rules of ethics. Included in the SEC's ethics rules are prohibitions against insider trading by corporate executives.
4. Comply with the SEC's rules against securities fraud. Rule 10b-5 prohibits executives, officers and major shareholders from knowingly using misinformation to buy or sell stock in the corporation for which they work. Advise your corporate officers, executives and major shareholders that your company will report all such actions to the SEC.
5. Refrain from engaging in short-swing trading of your corporation's stock. SEC rule 16(b) prohibits directors, officers, major shareholders and other key employees from buying and selling stock within a 6-month period. Basically, you can follow rule 16(b) by disallowing corporate insiders from selling stock they bought until they have held it for more than 6 months. This rule is meant to discourage stock-price manipulation.
6. Create internal-audit procedures. The SEC requires each NASDAQ-listed corporation to have the ability to perform internal audits.

Tips & Warnings

• Hire a corporate attorney to keep track of changes in SEC listing rules. Only someone trained in securities law is likely to be able to ensure that the corporation follows all SEC rules.
• If someone in your corporation is participating in short-swing trades, file a suit against him--in the corporation's name--in order to disgorge any profits the trader made.