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
Foreign Private Issuers – SEC Registration And Reporting And Nasdaq Corporate Governance – Part 1
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.
Definition of a Foreign Private Issuer
Both the Securities Act of 1933, as amended (“Securities Act”) and the Securities Exchange Act of 1934, as amended (“Exchange Act”) contain definitions of a “foreign private issuer” (“FPI). Generally, if a company does not meet the definition of an FPI, it is subject to the same registration and reporting requirements as any U.S. company.
The determination of FPI status is not just dependent on the country of domicile, though a U.S. company can never qualify regardless of the location of its operations, assets, management and subsidiaries. There are generally two tests of qualification as a foreign private issuer, as follows:
Terminating Reporting Obligations In An Abandoned IPO
It has been a tough few years for small cap (and all) initial public offerings (IPOs). Although I have been seeing a small up-tick in priced deals recently, we are not yet near the highs of 2020 – 2022. Among the various challenges facing IPO issuers, lengthy Nasdaq/NYSE review periods and trouble building out sufficient allocations have been especially difficult resulting in a lengthier IPO process than expected.
An increased IPO timeline adds significant expense to the process. A registration statement cannot go effective with stale financial statement. Financial statements for domestic issuers go stale every 135 days requiring either a new quarterly review or annual audit and an amended registration statement. Likewise, financial statements for foreign private issuers (FPIs) go stale every nine months. When an issuer is nearing the end date for financial statements, and it appears that a closing of an IPO may be imminent, they sometimes choose to go effective and rely on Rule 430A.
NYSE Approves Change To Delist Companies That Change Primary Business
On July 24, 2024, the SEC approved an NYSE rule change to allow for the delisting of companies that change their primary business.
NYSE Continued Listing Standards
As I wrote about in October 2023, the NYSE continued listing requirements as set forth in the Listed Company Manual section 802.01 include (pre-rule change) (see HERE):
- Distribution of Capital Stock: (i) total stockholders of 400; or (ii) total stockholders of 1,200 and an average monthly trading volume of less than 100,000 shares; or (iii) total non-affiliated publicly held shares of 600,000.
- Market Value: (i) average global market capitalization of less than $50 mil and stockholders equity is less than $50 mil for 30 consecutive trading days.
- Disposal of Assets – Reduction of Operations: The NYSE will consider a suspension or delisting if: (i) the company has sold or otherwise disposed of its principal operating assets or has ceased to be an operating company or has discontinued a substantial portion of its
NYSE Amends Shareholder Approval Requirements In Private Securities Transactions Involving Substantial Shareholders
On December 26, 2023, the SEC approved an NYSE rule change to make it easier for listed companies to raise money from existing substantial shareholders. In particular, the NYSE has amended Section 312.03(b) and 312.04 of the NYSE Listed Company Manual to modify the circumstances under which a listed company must obtain shareholder approval prior to the sale of securities below the Minimum Price to a substantial security holder.
Background
Section 312.03 of the NYSE Listed Company Manual lists the circumstances upon which shareholder approval must be obtained prior to the issuance of securities. Pre-amendment Section 312.03(b)(i) requires shareholder approval prior to the issuance of common stock, or of securities convertible into or exercisable for common stock, in any transaction or series of related transactions, to a director, officer or substantial security holder of the company (each a “Related Party”) if the number of shares of common stock to be issued, or if the number of shares of common stock
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 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
NYSE Annual Compliance Guidance Memo 2022
In January, NYSE Regulation sent out its yearly Compliance Guidance Memo to NYSE American listed companies. As discussed in the Compliance Memo, on October 26, 2022 the SEC adopted final rules on listing standards for the recovery of erroneously awarded incentive-based executive compensation (“Clawback Rules”). The Clawback Rules implement Section 954 of the Dodd-Frank Act and necessitate that national securities exchanges require disclosure of policies regarding and mandating the clawback of compensation under certain circumstances as a listing qualification. Each listed issuer will be required to adopt a compensation recovery policy, comply with that policy, and provide the necessary compensation recovery policy disclosures. An issuer will be subject to delisting if it does not adopt and comply with a compensation recovery policy that satisfies the listing standards. The NYSE must adopt the new listing standard by February 26, 2023. For more on the clawback rules, see HERE.
Annual Compliance Guidance Memo
The NYSE Memo provides a list of important
Small-Cap IPO Volatility – The China Connection
Less than two months after the PCAOB and the China Securities Regulatory Commission and Ministry of Finance signed a Statement of Protocol reaching a tentative deal to allow the PCAOB to fully inspect and investigate registered public accounting firms headquartered in mainland China and Hong Kong, Nasdaq effectively halted all small-cap IPOs with a China connection. This time, the issue is not audit-related.
During the week of September 19, one of our clients had a deal ready to be priced and begin trading on Nasdaq. We had thought we cleared all comments when a call came from our Nasdaq reviewer – all small-cap IPOs were being temporarily halted while the Exchange investigated recent volatility. The same day, an article came out on Bloomberg reporting on 2200% price swings (up and then steeply back down) on recent IPOs involving companies with ties to China – a repeat of similar volatility in the late ’80’s and early ’90’s despite three decades of
