On December 12, 2024, Nasdaq proposed an amendment to its liquidity listing standards for the Nasdaq Capital Market and Nasdaq Global Market such that the market value of unrestricted publicly held shares requirement could only be satisfied from the proceeds of the initial public offering. That is, Nasdaq would no longer count shares registered for re-sale by existing shareholders towards satisfying this listing standard. Nasdaq is also proposing to make similar changes affecting companies the uplist onto the Nasdaq from OTC Markets.
To list its securities on Nasdaq Capital Market or Nasdaq Global Market, a company is required to meet: (a) certain initial quantitative and qualitative requirements and (b) certain continuing quantitative and qualitative requirements. The quantitative listing thresholds for initial listing are generally higher than for continued listing, thus helping to ensure that companies have reached a sufficient level of maturity prior to listing. NASDAQ also requires listed companies to meet stringent corporate governance standards.
Listing Rules 5405 and 5505 sets forth the quantitative listing standards including requirements related to stockholder’s equity, the market value of unrestricted publicly held shares, operating history, market value of listed securities (total market cap), net income from continuing operations, the number of unrestricted publicly held shares, the number of round lot shareholders, and the bid price requirement. For a full breakdown of all listing requirements see HERE.
Proposed Amendment
Nasdaq Listing Rules require a company to have a minimum Market Value of Unrestricted Publicly Held Shares (“MVUPHS”). For initial listing on the Nasdaq Global Market, a company must have a minimum MVUPHS of $8 million under the Income Standard, $18 million under the Equity Standard, and $20 million under either the Market Value or Total Assets/Total Revenue Standards. For initial listing on the Nasdaq Capital Market, a company must have a minimum MVUPHS of $5 million under the Net Income Standard, and $15 million under either the Equity or Market Value of Listed Securities Standards.
In addition to the above requirements, if the security is trading in the U.S. over-the-counter market as of the date of application, the security must have a minimum average daily trading volume of 2,000 shares (including trading volume of the underlying security on the primary market with respect to an ADR), over the 30-trading-day period prior to listing, with trading occurring on more than half of those 30 days, unless such security is listed on the Exchange in connection with a firm commitment underwritten public offering of at least $4 million.
Unrestricted publicly held shares exclude shares held by an officer, director or 10% or greater shareholder and any shares subject to resale restrictions of any kind. Currently shares that are registered for resale as part of the listing process (IPO or uplisting) are included in the MVUPHS calculation as long as they are not held by officer, directors, 10%+ shareholders or are otherwise restricted.
The MVUPHS standard is meant to ensure that there is sufficient liquidity to provide price discovery and support an efficient and orderly market for a company’s securities. As the IPO market, especially for small and micro-cap companies, has struggled over the past few years, many companies raise money in pre-IPO private placements and then register those shares for re-sale as part of the IPO or uplisting process. These re-sale shares help the company to satisfy the MVUPHS standard and reduce the actual IPO offering burden on the underwriters. As noted in my recent market recap (see HERE) most small cap IPO’s are under $10,000,000. Moreover, the majority of these IPO’s are satisfying the Equity or Market Value of Listed Securities standard and not the Net Income standard for listing and thus have the higher MVUPHS threshold.
In its proposed rule release Nasdaq notes that it believes that the trading in securities of companies that have included re-sale shares to meet the MVUPHS standard tends to be more volatile. Furthermore, Nasdaq does not believe that the shares registered for re-sale contribute to liquidity to the same degree as the shares sold in the IPO.
The proposed rule change will amend Listing Rules 5405(b) and 5505(b) to provide that a company listing in connection with an IPO, including a foreign private issuer registering ADRs, must satisfy the MVUPHS requirement for an initial listing with the proceeds of the offering. Nasdaq will also make the same requirement applicable to the company’s uplisting from OTC Markets.
Nasdaq is also proposing to amend the listing standards requirement for companies that uplist from OTC Markets such that a company would now have to complete a minimum firm commitment offering of $5 million (up from $4 million) for Capital Markets and to $8 million for Global Markets if they don’t satisfy the minimum average daily trading volume requirements (2,000 shares over the 30 trading day period prior to listing with trading occurring on at least half of those 30 days).
The Author
Laura Anthony, Esq.
Founding Partner
Anthony, Linder & Cacomanolis
A Corporate and Securities Law Firm
Securities attorney Laura Anthony and her experienced legal team provide ongoing corporate counsel to small and mid-size private companies, public companies as well as private companies going public on the Nasdaq, NYSE American or over-the-counter market, such as the OTCQB and OTCQX. For more than two decades Anthony, Linder & Cacomanolis, PLLC has served clients providing fast, personalized, cutting-edge legal service. The firm’s reputation and relationships provide invaluable resources to clients including introductions to investment bankers, broker-dealers, institutional investors and other strategic alliances. The firm’s focus includes, but is not limited to, compliance with the Securities Act of 1933 offer sale and registration requirements, including private placement transactions under Regulation D and Regulation S and PIPE Transactions, securities token offerings and initial coin offerings, Regulation A/A+ offerings, as well as registration statements on Forms S-1, S-3, S-8 and merger registrations on Form S-4; compliance with the Securities Exchange Act of 1934, including registration on Form 10, reporting on Forms 10-Q, 10-K and 8-K, and 14C Information and 14A Proxy Statements; all forms of going public transactions; mergers and acquisitions including both reverse mergers and forward mergers; applications to and compliance with the corporate governance requirements of securities exchanges including Nasdaq and NYSE American; general corporate; and general contract and business transactions. Ms. Anthony and her firm represent both target and acquiring companies in merger and acquisition transactions, including the preparation of transaction documents such as merger agreements, share exchange agreements, stock purchase agreements, asset purchase agreements and reorganization agreements. The ALC legal team assists Pubcos in complying with the requirements of federal and state securities laws and SROs such as FINRA for 15c2-11 applications, corporate name changes, reverse and forward splits and changes of domicile. Ms. Anthony is also the author of SecuritiesLawBlog.com, the small-cap and middle market’s top source for industry news, and the producer and host of LawCast.com, Corporate Finance in Focus. In addition to many other major metropolitan areas, the firm currently represents clients in New York, Los Angeles, Miami, Boca Raton, West Palm Beach, Atlanta, Phoenix, Scottsdale, Charlotte, Cincinnati, Cleveland, Washington, D.C., Denver, Tampa, Detroit and Dallas.
Ms. Anthony is a member of various professional organizations including the Crowdfunding Professional Association (CfPA), Palm Beach County Bar Association, the Florida Bar Association, the American Bar Association and the ABA committees on Federal Securities Regulations and Private Equity and Venture Capital. She is a supporter of several community charities including the American Red Cross for Palm Beach and Martin Counties, Susan Komen Foundation, Opportunity, Inc., New Hope Charities, the Society of the Four Arts, the Norton Museum of Art, Palm Beach County Zoo Society, the Kravis Center for the Performing Arts and several others.
Ms. Anthony is an honors graduate from Florida State University College of Law and has been practicing law since 1993.
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