Notice2023-16499
Self-Regulatory Organizations; The Nasdaq Stock Market LLC; Notice of Filing of Proposed Rule Change To Establish Listing Standards Related To Notification and Disclosure of Reverse Stock Splits
Primary source
Metadata and text below are from the Federal Register, a public-domain U.S. government work. Always verify the official published version before relying on it for any legal matter.
Published
August 3, 2023
Issuing agencies
Securities and Exchange Commission
Full Text
<html>
<head>
<title>Federal Register, Volume 88 Issue 148 (Thursday, August 3, 2023)</title>
</head>
<body><pre>
[Federal Register Volume 88, Number 148 (Thursday, August 3, 2023)]
[Notices]
[Pages 51376-51379]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2023-16499]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-98014; File No. SR-NASDAQ-2023-025]
Self-Regulatory Organizations; The Nasdaq Stock Market LLC;
Notice of Filing of Proposed Rule Change To Establish Listing Standards
Related To Notification and Disclosure of Reverse Stock Splits
July 28, 2023.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that
on July 21, 2023, The Nasdaq Stock Market LLC (``Nasdaq'' or
``Exchange'') filed with the Securities and Exchange Commission
(``Commission'') the proposed rule change as described in Items I, II,
and III, below, which Items have been prepared by the Exchange. The
Commission is publishing this notice to solicit comments on the
proposed rule change from interested persons.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------
I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The Exchange proposes to establish listing standards related to
notification and disclosure of reverse stock splits.
The text of the proposed rule change is available on the Exchange's
website at <a href="https://listingcenter.nasdaq.com/rulebook/nasdaq/rules">https://listingcenter.nasdaq.com/rulebook/nasdaq/rules</a>, at
the principal office of the Exchange, and at the Commission's Public
Reference Room.
II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, the Exchange included statements
concerning the purpose of and basis for the proposed rule change and
discussed any comments it received on the proposed rule change. The
text of these statements may be examined at the places specified in
Item IV below. The Exchange has prepared summaries, set forth in
sections A, B, and C below, of the most significant aspects of such
statements.
A. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
1. Purpose
Nasdaq has observed that the current market environment has led to
an increase in reverse stock split activity. 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. Reverse stock splits are
often effected by smaller companies that do not have broad media or
research coverage. In most cases, the companies are listed on the
Capital Market tier and are conducting reverse stock splits to achieve
compliance with Nasdaq's $1 bid price requirement.\3\
---------------------------------------------------------------------------
\3\ Rule 5550(a)(2) specifies that a Company that has its
Primary Equity Security listed on the Capital Market must have a
minimum bid price of at least $1 per share. See also Rule 5450(a)(1)
(Global and Global Select Markets). Companies are afforded a grace
period pursuant to Rule 5810(c)(3)(A) to regain compliance.
---------------------------------------------------------------------------
Nasdaq believes that the increase in companies effecting reverse
stock splits warrants amendments to the listing rules to enhance the
ability for market participants to accurately process these events, and
thereby maintain fair and orderly markets. As such, Nasdaq is proposing
amendments to its rules regarding notification and disclosure of
reverse stock splits and regulatory halts.\4\ Specifically, Nasdaq is
proposing to adopt additional listing rules requiring a company
conducting a reverse stock split to notify Nasdaq about certain details
of the reverse stock split at least five (5) business days (no later
than 12:00 p.m. ET) prior to the anticipated market effective date, and
make public disclosure about the reverse stock split at least two (2)
business days (no later than 12:00 p.m. ET) prior to the anticipated
market effective date.\5\
---------------------------------------------------------------------------
\4\ Nasdaq intends to separately submit a rule filing g to adopt
a new regulatory halt specific to the pre-market trading and opening
of a Nasdaq-listed security undergoing a reverse stock split.
\5\ For example, if a company desires to effect a reverse stock
split with a market effective date of Monday, July 24, the company
would have to provide Nasdaq with a draft of the disclosure required
by proposed Rule 5250(b)(4) and a complete Company Event
Notification Form by 12:00 p.m. ET on Monday, July 17, and provide
the public disclosure by 12:00 p.m. ET by Thursday, July 20. Note
that this example presumes that there are no holidays during these
dates.
---------------------------------------------------------------------------
Currently, a reverse stock split is considered a ``Substitution
Listing Event'' under Listing Rule 5005(a)(44).\6\ Listing Rule
5250(e)(4) requires a company to notify Nasdaq about any ``Substitution
Listing Event (other than a re-incorporation or a change to a Company's
place of organization) no later than 15 calendar days prior to the
implementation of such event by filing the appropriate form as
designated by Nasdaq.'' Although there is no dedicated requirement for
public disclosure of a reverse stock split under Nasdaq's current
rules, Listing Rule 5250(b)(1) requires the company to make ``prompt
disclosure'' of ``any material information that would reasonably be
expected to affect the value of its securities or influence investors'
decisions,'' which includes reverse stock splits. While promptly is not
defined, Nasdaq has published an FAQ clarifying that ``[t]his
disclosure should be disseminated prior to, or in conjunction with, the
announcements that Corporate Data Operations will
[[Page 51377]]
make on the day prior to the market effective date at approximately
1:00 p.m.'' \7\
---------------------------------------------------------------------------
\6\ Listing Rule 5505(a)(44) states, in part, that a
``Substitution Listing Event'' means: a reverse stock split, re-
incorporation or a change in the Company's place of organization,
the formation of a holding company that replaces a listed Company,
reclassification or exchange of a Company's listed shares for
another security, the listing of a new class of securities in
substitution for a previously-listed class of securities, a business
combination described in IM-5101-2, a change in the obligor of a
listed debt security, or any technical change whereby the
Shareholders of the original Company receive a share-for-share
interest in the new Company without any change in their equity
position or rights.
\7\ See Nasdaq FAQ #317, available at <a href="https://listingcenter.nasdaq.com/Material_search.aspx?materials=317&mcd=LQ&criteria=2&cid=120%2C1%2C145%2C108%2C157%2C14%2C22%2C126%2C142%2C29%2C107%2C34%2C37%2C38%2C45%2C16%2C110%2C52%2C71%2C156%2C69%0A%0A">https://listingcenter.nasdaq.com/Material_search.aspx?materials=317&mcd=LQ&criteria=2&cid=120%2C1%2C145%2C108%2C157%2C14%2C22%2C126%2C142%2C29%2C107%2C34%2C37%2C38%2C45%2C16%2C110%2C52%2C71%2C156%2C69%0A%0A</a>. These announcements are
published as Equity Corporate Action Alerts on <a href="https://www.nasdaqtrader.com/">https://www.nasdaqtrader.com/</a> (the ``Nasdaq Trader website'').
---------------------------------------------------------------------------
Nasdaq proposes to delete the existing reference to a reverse stock
split in Listing Rule 5005(a)(44) and adopt new provisions to set forth
the timeframe and requirements for notification and disclosure related
to reverse stock splits within its listing rules. Specifically, Nasdaq
proposes to add new Listing Rules 5250(b)(4), 5250(e)(7) and IM-5250-3.
Nasdaq also proposes to amend Listing Rule 5250(b)(1) to specify that a
company should refer to Rule 5250(b)(4) and Rule 5250(e)(7) for the
disclosure and notification requirements related to a reverse stock
split and to clarify that existing times in that rule refer to Eastern
Time.
Proposed Listing Rule 5250(b)(4) will specify that a company must
provide public notice about a reverse stock split using a Regulation FD
compliant method no later than 12:00 p.m. ET at least two (2) business
days prior to the proposed market effective date. As is currently
required under IM-5250-1, and as with other news, prior notice of this
disclosure must be made to the MarketWatch Department through the
electronic disclosure submission system available at <a href="https://www.nasdaq.net">https://www.nasdaq.net</a>, except in emergency situations,\8\ when notification
may instead be provided by telephone or facsimile. Proposed Listing
Rule 5250(b)(4) will also specify that the company shall provide notice
of such disclosure to Nasdaq's MarketWatch Department at least ten
minutes prior to public announcement if the public release of the
material information is made between 7:00 a.m. to 8:00 p.m. ET. If the
public release of this information is made outside the hours of 7:00
a.m. to 8:00 p.m. ET, Nasdaq Companies must notify MarketWatch of the
material information prior to 6:50 a.m. ET.
---------------------------------------------------------------------------
\8\ See IM-5250-1, which states that examples of an emergency
situation include: lack of computer or internet access; technical
problems on either the Company or Nasdaq system or an
incompatibility between those systems; and a material development
such that no draft disclosure document exists, but immediate
notification to MarketWatch is important based on the material
event.
---------------------------------------------------------------------------
Proposed Listing Rule 5250(e)(7) will specify that, for a reverse
stock split, the company must notify Nasdaq by submitting a complete
Company Event Notification Form \9\ no later than 12:00 p.m. ET five
(5) business days prior to the proposed market effective date.\10\ The
submission must include all information required by the form and a
draft of the disclosure required by proposed Rule 5250(b)(4).
---------------------------------------------------------------------------
\9\ The text of this section of the proposed Company Event
Notification Form is included as Exhibit 3 to Nasdaq's rule filing
submitted to the Commission on Form 19b-4, which includes
information such as the split ratio; new CUSIP number; dates of
board approval, shareholder approval, and DTC eligibility; and the
effective date of the reverse stock split.
\10\ Nasdaq will review the form to determine whether the
submission includes all information required by the form and a draft
of the disclosure required by proposed Rule 5250(b)(4).
---------------------------------------------------------------------------
Proposed IM-5250-3 repeats the requirements of proposed Rules
5250(b)(4) and (e)(7) to provide issuers and market participants with
additional transparency by having all information related to the
reverse split process in one location in the rulebook.
Where Nasdaq receives a timely and complete notification of a
reverse stock split, which is also timely disclosed, as required by
proposed Listing Rules 5250(b)(4) and 5250(e)(7), Nasdaq will process
the reverse stock split for the identified market effective date.\11\
However, proposed Listing Rule 5250(e)(7) will specify that where
Nasdaq does not receive a timely and complete notification \12\ or
where the reverse stock split is not timely and accurately disclosed,
as required by proposed Listing Rule 5250(b)(4), Nasdaq will not
process a reverse stock split until those requirements have been
satisfied. If a company takes legal action, such as under state law or
in any other manner, to effect a reverse stock split notwithstanding
its failure to timely satisfy these requirements, or Nasdaq determines
that the company has provided incomplete or inaccurate information
about either the timing or ratio of the reverse stock split in the
public disclosure required under proposed Rule 5250(e)(4) [sic], Nasdaq
will halt the stock in accordance with the procedure set forth in
Equity 4, Rule 4120(a)(1), which provides Nasdaq with the authority to
halt trading to permit the dissemination of material news.
---------------------------------------------------------------------------
\11\ See note 4, supra. If that proposed rule filing is
approved, then, as described in that rule filing, Nasdaq would halt
the pre-market trading of the security in accordance with the
procedure set forth in proposed Equity 4, Rule 4120A(c), and open
the security for trading in accordance with the procedure set forth
in proposed Equity 4, Rule 4120A(d).
\12\ See proposed Rule 5250(e)(7) requiring the company to
``file a complete Company Event Notification Form'' containing ``all
information required by the form. . . .'' Thus, for example, Nasdaq
will not process a proposed reverse stock split if the Company Event
Notification Form does not include the new CUSIP number or a split
ratio if the press release contains a split ratio or market
effective date that is inconsistent with the draft submission
previously provided to Nasdaq.
---------------------------------------------------------------------------
Nasdaq believes the proposed amendments will provide additional
transparency and clarity to companies and market participants by
specifying the notification and disclosure requirements related to
reverse stock splits. The requirement for companies to submit a
completed Company Event Notification Form no later than 12:00 p.m. ET
five business days prior to the market effective date will help ensure
that Nasdaq has timely and complete information to process the reverse
stock split prior to the effective date, such as the split ratio; new
CUSIP number; dates of board approval, shareholder approval, and DTC
eligibility; and the effective date of the reverse stock split.
Moreover, by shortening the deadline for the notification from 15
calendar days to five business days, Nasdaq believes that companies
will be able to provide complete information in a single submission of
the form, which they often cannot do today. For example, currently some
companies may submit a form without CUSIP information, and then will
email the CUSIP information to Nasdaq a few days later. Other companies
may not yet have received confirmation of DTC eligibility, and receive
it closer to the market effective date of the reverse stock split.
Furthermore, where a company is conducting a reverse stock split to
demonstrate compliance with the minimum $1 bid price requirement, a
company may need to modify the ratio of the reverse stock split after
providing initial notice due to changes in market conditions and the
company's stock price. As such, the shorter time frame will simplify a
company's ability to provide the information required by the form
because all relevant information can be provided in one submission
closer to the action date and thereby improve Nasdaq's processing of
the forms and reduce the possibility of errors resulting from multiple
updates to the forms through various communication channels.\13\
---------------------------------------------------------------------------
\13\ Nasdaq represents that the five business day timeframe
still provides sufficient time for Nasdaq to process the
notification.
---------------------------------------------------------------------------
The requirement under proposed Rule 5250(e)(7) for companies to
submit a draft of the Regulation FD disclosure required by proposed
Rule 5250(b)(4) will help ensure that the information disseminated to
the market by the company aligns with Nasdaq's announcement, including
the split ratio and market effective date. The
[[Page 51378]]
requirement under proposed Rule 5250(b)(4) for a company to make public
disclosure about a reverse stock split no later than 12:00 p.m. ET two
business days prior to the market effective date will help ensure that
sufficient notice is provided to market participants, thereby allowing
them to process the event in their systems. Currently, the Nasdaq
Trader website announcement and the company's press release are
published the day prior to the reverse split, and includes material
information such as the CUSIP number and split ratio. If a market
participant inadvertently misses the announcement, they may continue to
accept orders at the pre-split price, rather than the post-split
adjusted price, which could lead to volatility in the stock price and
trading inaccurate share amounts.\14\ In connection with the proposed
amendments, Nasdaq would publish an announcement through the Nasdaq
Trader website one and two business days prior to the market effective
date.\15\ Therefore, proposed Rule 5250(b)(4) would provide market
participants with at least one additional business day to review the
company's public disclosure about the reverse stock split and update
their systems. Accordingly, Nasdaq believes that the proposed rule
changes will help maintain fair and orderly markets, protect investors
and the public interest.
---------------------------------------------------------------------------
\14\ For example, if a company conducts a 1-for-10 reverse stock
split, and the pre-split price was $1, the post-split price should
be approximately $10. However, if a market participant fails to
update its systems, it could input orders to sell the security for
$1, which could negatively impact the stock's trading price and
cause market confusion. This could also result in a broker selling
more shares than customers held in their accounts, resulting in a
temporary short position.
\15\ A company may publish a press release earlier than two
business days prior to the market effective date of the reverse
stock split. However, Nasdaq will only publish an announcement
through the Nasdaq Trader website one and two business days prior to
the reverse stock split. For example, if a company publishes a press
release on Monday announcing a reverse stock split with a market
effective date on Friday, Nasdaq will only publish an announcement
through the Nasdaq Trader website on Wednesday and Thursday.
---------------------------------------------------------------------------
2. Statutory Basis
The Exchange believes that its proposal is consistent with Section
6(b) of the Act,\16\ in general, and furthers the objectives of Section
6(b)(5) of the Act,\17\ in particular, in that it is designed to
promote just and equitable principles of trade, to remove impediments
to and perfect the mechanism of a free and open market and a national
market system, and, in general to protect investors and the public
interest. Further, the Exchange believes that this proposal is not
designed to permit unfair discrimination between customers, issuers,
brokers, or dealers.
---------------------------------------------------------------------------
\16\ 15 U.S.C. 78f(b).
\17\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------
Nasdaq believes that shortening the current notification
requirement from 15 days to five will allow companies to provide
complete submissions, whereas the current 15-day requirement results in
incomplete submissions that must be updated. As discussed in more
detail above, this will simplify Nasdaq's processing of the forms and
reduce the possibility of errors resulting from these multiple updates
through multiple communication mediums. Nasdaq also believes that the
minimum two business day public notice will allow market participants
to timely update their systems, which will help to reduce the risk that
investors and brokers inadvertently miss the public announcement of the
reverse split, and continue to make or accept trades at the pre-split
price, as described above. Therefore, requiring additional notification
and disclosure requirements for reverse stock splits will help to
support fair and orderly trading, which will reduce trading volatility
and potential price mistakes, thereby protecting investors and the
public interest.
Nasdaq believes the proposal is not designed to permit unfair
discrimination among companies because the proposal will apply to all
companies instituting a reverse stock split. Any disclosure burden
placed on these companies, as opposed to companies that are not
effecting a reverse stock split, is reasonable and not unfairly
discriminatory because reverse stock splits present unique potential
risks to investors and market participants if they fail to adjust their
quotes and orders or are not aware of the accurate split ratio. This
creates the potential for substantial financial, operational, client,
reputational and regulatory impacts should an error occur. Therefore,
Nasdaq believes that it is not unfairly discriminatory to require
greater transparency to investors through public disclosure containing
material information, such as the company's split ratio and market
effective date, thereby maintaining fair and orderly trading,
protecting investors and promoting the public interest consistent with
Section 6(b)(5) of the Act.
B. Self-Regulatory Organization's Statement on Burden on Competition
The Exchange does not believe that the proposed rule change will
impose any burden on competition not necessary or appropriate in
furtherance of the purposes of the Act. The proposed amendments would
not impose any burden on competition, not necessary or appropriate in
furtherance of the purposes of the Act, because the proposed listing
standards will apply to all listed companies. Further, the Exchange
believes the proposal will not impose a burden on intermarket
competition that is not necessary or appropriate in furtherance of the
purposes of the Act because the proposed rule change is designed to
protect investors and facilitate a fair and orderly market, which are
both important purposes of the Act. To the extent that there is any
impact on intermarket competition, it is incidental to these
objectives. Moreover, other exchanges can adopt rules similar to the
Exchange's proposal if they believe the proposed disclosures would
create a competitive advantage for Nasdaq.
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others
No written comments were either solicited or received.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
Within 45 days of the date of publication of this notice in the
Federal Register or within such longer period (i) as the Commission may
designate up to 90 days of such date if it finds such longer period to
be appropriate and publishes its reasons for so finding or (ii) as to
which the Exchange consents, the Commission shall: (a) by order approve
or disapprove such proposed rule change, or (b) institute proceedings
to determine whether the proposed rule change should be disapproved.
IV. Solicitation of Comments
Interested persons are invited to submit written data, views and
arguments concerning the foregoing, including whether the proposed rule
change is consistent with the Act. Comments may be submitted by any of
the following methods:
Electronic Comments
<bullet> Use the Commission's internet comment form (<a href="https://www.sec.gov/rules/sro.shtml">https://www.sec.gov/rules/sro.shtml</a>); or
<bullet> Send an email to <a href="/cdn-cgi/l/email-protection#ec9e998089c18f8381818982989fac9f898fc28b839a"><span class="__cf_email__" data-cfemail="5b292e373e76383436363e352f281b283e38753c342d">[email protected]</span></a>. Please include
file number SR-NASDAQ-2023-025 on the subject line.
Paper Comments
<bullet> Send paper comments in triplicate to Secretary, Securities
and Exchange Commission, 100 F Street NE, Washington, DC 20549-1090.
[[Page 51379]]
All submissions should refer to file number SR-NASDAQ-2023-025. This
file number should be included on the subject line if email is used. To
help the Commission process and review your comments more efficiently,
please use only one method. The Commission will post all comments on
the Commission's internet website (<a href="https://www.sec.gov/rules/sro.shtml">https://www.sec.gov/rules/sro.shtml</a>). Copies of the submission, all subsequent amendments, all
written statements with respect to the proposed rule change that are
filed with the Commission, and all written communications relating to
the proposed rule change between the Commission and any person, other
than those that may be withheld from the public in accordance with the
provisions of 5 U.S.C. 552, will be available for website viewing and
printing in the Commission's Public Reference Room, 100 F Street NE,
Washington, DC 20549, on official business days between the hours of 10
a.m. and 3 p.m. Copies of the filing also will be available for
inspection and copying at the principal office of the Exchange. Do not
include personal identifiable information in submissions; you should
submit only information that you wish to make available publicly. We
may redact in part or withhold entirely from publication submitted
material that is obscene or subject to copyright protection. All
submissions should refer to file number SR-NASDAQ-2023-025 and should
be submitted on or before August 24, 2023.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\18\
---------------------------------------------------------------------------
\18\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------
Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2023-16499 Filed 8-2-23; 8:45 am]
BILLING CODE 8011-01-P
</pre><script data-cfasync="false" src="/cdn-cgi/scripts/5c5dd728/cloudflare-static/email-decode.min.js"></script></body>
</html>Indexed from Federal Register on August 3, 2023.
This is legal information, not legal advice. Laws vary by jurisdiction and change frequently. Always verify current law with official sources and consult a licensed attorney in your jurisdiction for advice on your specific situation.