Securities Law

Court Overrules Nasdaq Board Diversity Rule

The court has come to the rescue once again! On December 11, 2024, the 5^th Circuit held that the SEC exceeded its authority in approving Nasdaq’s board diversity rule finding the rule was far removed from the purposes of the Securities Exchange Act’s regulatory regime. Rumor has it that the Nasdaq does not intend to appeal, meaning the board diversity rule may be DOA.

Background

On August 6, 2021, the SEC approved Nasdaq’s board diversity listing standards proposal adding new listing Rule 5606(a) (see HERE).

Nasdaq Rule 5606(a) requires Nasdaq listed companies to publicly disclose, in an aggregated form, to the extent permitted by law (for example, some foreign countries may prohibit such disclosure), information on the voluntary self-identified gender and racial characteristics and LGBTQ+ status of the company’s board of directors as part of the ongoing corporate governance listing requirements. Each company must provide an annual Board Diversity Matrix disclosure, including: (i) the total number of directors;

December 17, 2024

Court Strikes Down Recent Changes To Definition Of A Dealer

In a big win for hedge funds and the crypto industry, on November 21, 2024, a Texas federal judge overturned the recent SEC rule that expanded the definition of “dealer” under the Exchange Act. For a review of the final rule see HERE.

The amendments were intended to require certain proprietary or principal traders and liquidity providers to register as either a dealer or government securities dealer as applicable. The rules amended Exchange Act Rules 5a5-4 and 3a44-2 to enhance the definition of “as part of a regular business” in Sections 3(a)(5) and 3(a)(44) of the Exchange Act.

In a legal challenge, the Crypto Freedom Alliance of Texas and Blockchain Association sued the SEC claiming that the rule amendments radically expanded the definition of a “dealer” in a way that could encompass digital asset industry participants (and hedge funds) that do not engage in any conduct resembling “dealing” as that term has ever been

December 10, 2024

Understanding the Shareholder Meeting Timeline

Proxy season is fast approaching. Whether it is for an annual meeting or special shareholder meeting, clients are always asking how quickly they can schedule a shareholder meeting, or where action is taken by consent, how quickly the company can effectuate such consented upon action. The answer depends on several factors, including whether the meeting is a special or annual meeting, if annual, whether there are any “non-routine” items on the agenda, and whether the company intends to mail out all proxy materials or just a notice of internet availability of such materials. Although I have written about the proxy rules many times, this is the first blog where I drill down and focus on the timeline.

The federal proxy rules can be found in Section 14 of the Securities Exchange Act of 1934 (“Exchange Act”) and the rules promulgated thereunder. The rules apply to any company which has securities registered under Section 12 of the Exchange Act. Section 14

December 3, 2024

Introducing The OTCID

OTC Markets has announced the launch of a new market tier. Effective July 2025, Pink Current will become the OTCID, a basic reporting market requiring companies to meet minimal current information disclosures and provide management certifications. OTC Markets will still maintain the Pink Limited and Expert Market tiers for companies that do not qualify for the OTCID. OTC Markets has not yet published all of the requirements for the OTCID, but I suspect they will be similar to the existing Pink Current, with the addition of the management certifications.

I support the change and new branding opportunity. OTC Markets have struggled in recent years, primarily as a result of an inability for OTC Markets traded companies to obtain institutional financing or underwriter/placement agent banker support. Forever the optimist, the change could be just what is needed to revitalize the OTC Markets as a venture market place for U.S. micro-cap companies.

OTCID

Currently, the OTC Markets divides issuers into

November 26, 2024

Nasdaq Amends Bid Price Compliance Rules to Accelerate Delisting Process

On October 7, 2024 the SEC approved amendments to Nasdaq Rule 5810(c)(3)(A) to allow for an accelerated delisting process where a listed company uses a reverse split to regain compliance with the bid price requirement for continued listing, but that as a result of the reverse split, the company falls below other listing standards, such as the minimum number of round lot holders, or minimum number of shares in the publicly held float. This new rule is separate from another pending rule change that would accelerate the delisting process for companies that fail to regain compliance with the minimum bid price requirements following a second compliance period and for securities that have had a reverse stock split over the prior one-year period.

These rule changes follow other recent rule changes meant to reduce the number of ultra micro-cap companies trading on the national exchange and tighten up compliance for those that do meet the standards. In March 2024, Nasdaq amended

November 19, 2024

Market Wrap-Up

For the first time since December 2022, the markets are seeing an uptick in completed small cap initial public offerings (IPOs). My clients are always asking me about the deals that are getting done, which prompted this blog, the first in what will be regular periodic market roundups.

Nineteen small cap (under $25,000,000) IPOs priced in October compared to 12 in September; 8 in August; 8 in July; 3 in June; 5 in May; 12 in April; 6 in March; 6 in February; and 8 in January. Below is a chart of relevant deal information for the 19 October IPOs. Normally, I would include all deals under $50,000,000 in this category, but the deal sizes remain very low. As deal sizes return to pre 2022 normal levels, I will adjust by market recaps upward accordingly.

Exchange	Offer Amount	Domestic/Foreign Issuer	Banker(s)

Nasdaq Capital	$4,199,995	Foreign	Aegis Capital Corp.
Nasdaq Capital	$5,200,000	Foreign	The Benchmark Company
Nasdaq Capital	$7,000,000

November 12, 2024

Nasdaq and NYSE Clawback Rules

On October 26, 2022, the SEC adopted final rules on listing standards for the recovery of erroneously awarded incentive-based executive compensation (“Clawback Rules”) (see HERE). The Clawback Rules implement Section 954 of the Dodd-Frank Act and require that national securities exchanges require disclosure of policies regarding and mandating the clawback of compensation under certain circumstances as a listing qualification.

I’ve written about the Clawback Rules a few times, including SEC guidance (see HERE) but have not detailed the final Nasdaq and NYSE rules, until now.

Nasdaq Clawback Rules

Nasdaq listing Rule 5608 sets forth the listing requirements related to the recovery of erroneously awarded compensation. The language conforms closely to Rule 10D-1 and the SEC release, including explanations on materiality and “litter” restatements that are material based on facts and circumstances and existing judicial and administrative interpretations.

As allowed by Rule 10D-1, the Nasdaq rule provides that a company would not be required to pursue

November 5, 2024

SEC Adopts New EDGAR Rules

A year after publishing proposed rules, on September 27, 2024, the SEC adopted rule and form amendments to the EDGAR system dubbing the updates as EDGAR Next (for a review of the proposed rules see HERE). The rule changes are meant to enhance security and improve access to the EDGAR system. My view is that will accomplish the former and not the latter. The changes require EDGAR filers to authorize identified individuals who are responsible for managing the filers’ EDGAR accounts. Individuals acting on behalf of filers on EDGAR will need individual account credentials to access those EDGAR accounts and make filings.

The new rules amend Rules 10 and 11 of Regulation S-T and amend Form ID. Only the identified authorized individuals will be able to access a filer’s EDGAR account. The authorized individual(s) need not be an employee of the filer, but the filer needs to provide a notarized power of attorney to appoint someone.

Through the

October 29, 2024

Foreign Private Issuers – SEC Registration And Reporting And Nasdaq Corporate Governance – Part 3

Although many years ago I wrote a high-level review of foreign private issuer (FPI) registration and ongoing disclosure obligations, I have not drilled down on the subject until now. While I’m at it, in the multi part blog series, I will cover the Nasdaq corporate governance requirements for listed FPIs.

In Part 1 in this series, I covered the definition of a foreign private issuer (FPI), registration and ongoing reporting requirements – see HERE. In Part 2 I covered Rules 801 and 802 of the Securities Act, which give FPI’s registration exemptions for rights offerings and exchange offers, respectively – see HERE. In this Part 3, I discuss the Nasdaq corporate governance requirements for FPIs.

Nasdaq Corporate Governance

In addition to its quantitative listing standards, Nasdaq imposes certain corporate governance and board composition requirements as part of its listing standards. FPIs, however, are exempt from numerous of these standards and may instead opt to comply with home

October 22, 2024

Foreign Private Issuers – SEC Registration And Reporting And Nasdaq Corporate Governance – Part 2

In Part 1 in this series, I covered the definition of a foreign private issuer (FPI), registration and ongoing reporting requirements – see HERE. In this Part 2 I will cover Rules 801 and 802 of the Securities Act, which give FPI’s registration exemptions for rights offerings and exchange offers, respectively.

Rule 801 – Exemption in Connection with Rights Offerings

Rule 801 provides an exemption from registration for certain rights offerings by FPIs. A “rights offering” is defined for these purposes as the sale for cash of equity securities in which existing securities holders of a particular class (including holders of ADRs) are

October 15, 2024

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Securities Law

Court Overrules Nasdaq Board Diversity Rule

Court Strikes Down Recent Changes To Definition Of A Dealer

Understanding the Shareholder Meeting Timeline

Introducing The OTCID

Nasdaq Amends Bid Price Compliance Rules to Accelerate Delisting Process

Market Wrap-Up

Nasdaq and NYSE Clawback Rules

SEC Adopts New EDGAR Rules

Foreign Private Issuers – SEC Registration And Reporting And Nasdaq Corporate Governance – Part 3

Foreign Private Issuers – SEC Registration And Reporting And Nasdaq Corporate Governance – Part 2

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