Nasdaq Listing Deficiencies And Delisting – Part 3
As 2022 and 2023 have continued to be extremely tough years for the capital markets many small cap companies find themselves failing to maintain the minimum continued listing requirements. I’ve recently written about those continued listing requirements, see HERE, and Nasdaq’s proposed rule changes for reverse split notifications as companies struggle to maintain the $1.00 minimum bid price requirement, see HERE.
These blogs provide a perfect segue for a deep dive into the Nasdaq deficiency notice and delisting process. In this first blog in the series, I provided an overview of deficiencies, deficiency notices, cure periods and compliance plans – see HERE. In Part 2, I reviewed the hearing panel process – see HERE. In this Part 3, I will review the appeals to the Nasdaq Listing and Hearing Review Council and delisting. I note that the Nasdaq rules also contain administrative rules regarding the conduct of adjudicators and advisors and the adjudication process, which
Nasdaq Listing Deficiencies And Delisting– Part 2
As 2022 and 2023 have continued to be extremely tough years for the capital markets many small cap companies find themselves failing to maintain the minimum continued listing requirements. I’ve recently written about those continued listing requirements, see HERE, and Nasdaq’s proposed rule changes for reverse split notifications as companies struggle to maintain the $1.00 minimum bid price requirement, see HERE.
These blogs provide a perfect segue for a deep dive into the Nasdaq deficiency notice and delisting process. In this first blog in the series, I provided an overview of deficiencies, deficiency notices, cure periods and compliance plans – see HERE. In this Part 2, I will review the hearing panel process followed by appeals and ultimately delisting.
Review of Deficiency Determinations by Hearing Panel
As noted in Part 1 of this series, Nasdaq deficiency notifications are one of four types:
- Staff delisting determinations, which are notifications of deficiencies that, unless appealed, subject the Company to
Nasdaq Listing Deficiencies And Delisting – Part 1
As 2022 and 2023 have continued to be extremely tough years for the capital markets, many small-cap companies find themselves failing to maintain the minimum continued listing requirements. I’ve recently written about those continued listing requirements – see HERE – and Nasdaq’s proposed rule changes for reverse split notifications as companies struggle to maintain the $1.00 minimum bid price requirement – see HERE.
These blogs provide a perfect segue for a deep dive into the Nasdaq deficiency notice and delisting process. In this first blog in the series, I provide an overview of deficiencies, deficiency notices, cure periods and compliance plans. In the Part 2, I will review the hearing panel process followed by appeals and ultimately delisting.
Overview – Deficiency Notices
When the Nasdaq Listing Qualifications Department determines that a company does not meet a listing standard, it will immediately notify the company of the deficiency. The notification will come in letter format, literally within a day
NYSE/NYSE American Continued Listing Requirements
Although I often write about initial listing standards, I realized that I have not yet blogged about the reduced ongoing listing standards for national exchanges. Last week I wrote about the Nasdaq continued listing requirements (see HERE) and this week I will cover the NYSE and NYSE American. For a review of the initial listing requirements for the NYSE American see HERE.
NYSE American
The NYSE American prefaces it continued listing qualitative minimum standards with it high level discretionary authority. The basis for continued listing is summed up in Section 1001 of the NYSE Company Guide as follows:
In considering whether a security warrants continued trading and/or listing on the Exchange, many factors are taken into account, such as the degree of investor interest in the company, its prospects for growth, the reputation of its management, the degree of commercial acceptance of its products, and whether its securities have suitable characteristics for auction market trading. Thus, any developments
NASDAQ Continued Listing Requirements
Although I often write about initial listing standards, I realized that I have not yet blogged about the reduced ongoing listing standards for national exchanges. In this blog, I will cover the continued listing requirements for Nasdaq listed companies and in next week’s blog I will cover the NYSE/NYSE MKT. For a review of initial listing requirements for the Nasdaq Capital Markets and NYSE MKT see HERE.
Nasdaq Capital Markets
To continue listing on Nasdaq Capital Markets, a company is required to meet certain ongoing quantitative and qualitative requirements. NASDAQ also requires listed companies to meet stringent corporate governance standards.
In order to continue listing on Nasdaq Capital Markets a company must meet all of the following requirements: (i) at least 2 market makers; (ii) a $1 minimum bid price; (iii) at least 300 unrestricted round lot public shareholders; (iv) at least 500,000 publicly held shares; and (v) a market value of publicly held shares of at least $1
NASDAQ Proposes Reverse Split Rule Changes
In July Nasdaq filed a proposed rule change with the SEC to establish listing standards related to notification and disclosure requirements of reverse splits. As of the writing of this blog, the proposed rule change has received only a single comment, which supported the change.
Background
After the market highs of the second half of 2020 and all of 2021, we have all witnessed the general decline, including noticeably depressed valuations and market price, especially in the small cap space. In 2022, Nasdaq processed 196 reverse stock splits, compared to 31 in 2021 and 94 in 2020. As of June 23, 2023, Nasdaq has processed 164 reverse stock splits, and projects significantly more throughout 2023. In its rule proposal, Nasdaq notes that the majority of reverse splits are effectuated by smaller companies that do not have broad media or research coverage. These companies generally trade on the Nasdaq Capital Market tier of the exchange and are completing reverse splits
Nasdaq Board Diversity Matrix In Practice
Although the compliance deadline for the requirement to add diverse directors was extended, the board diversity matrix disclosure form (“Board Diversity Matrix”) requirement is now in its second year.
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; (ii) the number of directors based on gender identity (female, male or non-binary); (iii) the number of directors that did not disclose gender; (iv) the number of directors based on race and ethnicity; (v) the number of directors who self-identify as LGBTQ+; and (vi) the number of directors who did not disclose a demographic background.
Nasdaq Amends Pricing Limitations Rules In A Direct Listing
The rules related to direct listings continue to evolve, with the latest Nasdaq rule change being approved on December 2, 2022, although their utilization has been slow to gain traction. Despite the Exchange’s efforts to make the process more attractive and viable, based on a few articles on the subject, only 10 companies had gone public via direct listing as of December 31, 2021, and I could not find a single example of any others since that time. Moreover, and certainly due to the elevated listing standards and arduous process, each of the companies have been much more mature such as Spotify, Slack, Palantir and Coinbase.
In any event, both Nasdaq and the NYSE continue with an “if we build it they will come” approach. After multiple iterations with the SEC, both Nasdaq and the NYSE approved rules that allow a company to raise capital concurrently with a direct listing (see HERE). The very handy Nasdaq Initial Listing Guide
Guidance On Executive Compensation Clawback Rules; NYSE And Nasdaq Issue Proposed 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 clawback of compensation under certain circumstances as a listing qualification. The proposed rules were first published in July 2015 (see HERE) and have moved around on the SEC semiannual regulatory agenda from proposed to long-term and back again for years.
The Clawback Rules add a check box to Forms 10-K, 20-F and 40-F to indicate whether the form includes the correction of an error in previously issued financial statements and a related recovery analysis. Although the check box has already been added to the Forms, the new Clawback Rules are not effective until November 28, 2023. As such, the SEC has issued guidance regarding compliance with the check box in
Compliance Deadlines For Nasdaq Board Diversity Rules
On August 6, 2021, the SEC approved Nasdaq’s board diversity listing standards proposal. Nasdaq Rule 5605(f) requires Nasdaq listed companies, subject to certain exceptions, to: (i) to have at least one director who self-identifies as a female, and (ii) have at least one director who self-identifies as Black or African American, Hispanic or Latino, Asian, Native American or Alaska Native, Native Hawaiian or Pacific Islander, two or more races or ethnicities, or as LGBTQ+, or (iii) explain why the company does not have at least two directors on its board who self-identify in the categories listed above. The rule changes also made headlines in most major publications. One of the most common themes in the press was the lack of inclusion of people with disabilities in the definition of an “underrepresented minority” for purposes of complying with the new rules.
The original rules had tiered compliance deadlines which Nasdaq (and practitioners) found confusing and unnecessarily complicated. On December 14,
