The SEC recently approved a proposed change to Nasdaq's rules regarding continued listing and compliance requirements. The amendments to the rules were passed in part due to recent economic conditions that resulted in many companies falling out of compliance with Nasdaq listing requirements. Furthermore, some of these modifications were intended to create consistency with other Nasdaq listing requirements and similar rules of other exchanges. The amendments include changes that:
- extend the length of time that a company's listed securities may fall below the applicable market value requirements before the company is considered non-compliant;
- increase the time period for a company that has fallen out of compliance with market value requirements for listed securities and publicly held shares to regain its compliance; and
- increase the number of days a company has to submit a plan to regain compliance with certain listing requirements (such as minimum requirements for stockholders' equity, the number of publicly held shares, or the number of shareholders, among others).
The following memorandum provides a brief summary of the changed listing requirements.
Price Related Criteria
Under Nasdaq's prior rules, if the market value of a listed security fell below the relevant market value requirement for 10 consecutive trading days, the company was considered non-compliant. The amended rule lengthens this time period to 30 consecutive trading days. This change creates consistency with the continued listing rules governing the market value of publicly held shares, which specify that a company is deficient if it falls below the market value standards for 30 consecutive trading days, and the requirements for the bid price listing standard, which also include a 30 consecutive trading day threshold.1
If a company was deemed non-compliant or deficient with respect to the market value requirements, the Nasdaq's old rules gave the company 90 calendar days to regain compliance. The amended rules extend this time period to 180 days, similar to the time period a company is given to regain compliance with Nasdaq's bid price requirements. These changes are being implemented not only to create consistency between the standards for listed securities and publicly held shares, but also to give companies a more sufficient and realistic amount of time to regain compliance.
The SEC's release approving the rule changes sets forth the implementation schedule for the new time periods. A company that had not yet been notified of non-compliance with the market value requirements for listed securities as of the date of the SEC's approval of these new Nasdaq requirements will be given the full 30 consecutive trading day period. Similarly, any company that was already notified of non-compliance with market value requirements for listed securities or publicly held shares, but is still in the 90 day period to regain compliance, will be given an extension of 180 days from the date of notification of non-compliance to regain compliance. A company will not receive additional time if the 90 day period had already expired at the time SEC approved the changes.
Compliance Plans
A company that is non-compliant with the listing requirements may, in certain circumstances, submit a plan of compliance to the Nasdaq staff. Following the submission, the staff may grant the company a time period to implement the plan and regain compliance. A company may submit such a plan in connection with certain specified deficiencies, such as when the company does not meet the minimum requirements for stockholders' equity, the number of publicly held shares, or the number of shareholders, among others.
The amended rule increases the amount of time that a company has to submit and implement a compliance plan. The prior rule allowed a company only 15 calendar days to submit a plan to regain compliance. This time period has been increased to 45 days from the initial non-compliance notice and allows the Nasdaq staff to grant up to a 5-day extension of this period if good cause is shown.2 Nasdaq has also extended the maximum time period that a staff member can grant to a company to regain compliance from 105 days to 180 days. The longer time periods are intended to provide companies with adequate time to create and implement workable compliance plans.
A company that had not yet submitted a plan to regain compliance as of the date of the SEC's approval of these new Nasdaq requirements will be given 45 days from the original notification of deficiency to submit a plan. Nasdaq staff may grant a period of up to 180 days from the original notification of deficiency for a company to regain compliance if the company had already submitted its plan of compliance but had not yet received notice as to whether it was granted additional time as of the date of the SEC's approval of these new Nasdaq requirements. If a company has already received an extension, Nasdaq staff may also grant up to 180 days from the original notification of deficiency for a company to regain compliance.
Footnotes
1 Listed securities are any securities listed on Nasdaq. Publicly held shares, in comparison, are shares that are not held directly or indirectly by an officer, director or any person who is the beneficial owner of more than 10% of the total outstanding shares. A company may be required to maintain certain market values in either category depending on the listing requirements the company is subject to under Nasdaq rules.
2 Nasdaq expects that this extension period would be used when a company was unable to submit its plan within the specified time period due to circumstances beyond its control, such as severe weather.
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