Notice2024-15038
Self-Regulatory Organizations; The Nasdaq Stock Market LLC; Notice of Filing of Proposed Rule Change To Modify the Application of Bid Price Compliance Periods
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
July 9, 2024
Issuing agencies
Securities and Exchange Commission
Full Text
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<title>Federal Register, Volume 89 Issue 131 (Tuesday, July 9, 2024)</title>
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[Federal Register Volume 89, Number 131 (Tuesday, July 9, 2024)]
[Notices]
[Pages 56457-56458]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2024-15038]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-100461; File No. SR-NASDAQ-2024-029]
Self-Regulatory Organizations; The Nasdaq Stock Market LLC;
Notice of Filing of Proposed Rule Change To Modify the Application of
Bid Price Compliance Periods
July 3, 2024.
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 June 21, 2024, The Nasdaq Stock Market LLC (``Nasdaq'' or
``Exchange'') filed with the Securities and Exchange Commission
(``SEC'' or ``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.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The Exchange proposes to modify the application of the bid price
compliance periods where a company takes action that causes non-
compliance with another listing requirement.
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
Reverse stock splits have the effect of increasing a company's
stock price by consolidating the outstanding shares. Companies may
effect a reverse stock split to regain compliance with the minimum bid
price required by Exchange listing rules (the ``Bid Price
Requirement'').\3\ The share reduction caused by the reverse stock
split results in a proportional reduction in the number of Publicly
Held Shares \4\ and, depending on how fractional shares are treated,
may also reduce the number of holders of the company's securities. As
such, implementation of a reverse stock split could trigger non-
compliance with other listing rules and start a new deficiency
process.\5\ Nasdaq believes that this scenario creates confusion for
investors around the Company's ability to maintain compliance with the
Listing Rules and could negatively impact investor confidence in the
market. Accordingly, Nasdaq believes that in such cases the company
should not be afforded additional time to regain compliance with that
newly created deficiency.
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\3\ Each tier of Nasdaq includes a requirement that specified
securities maintain a $1.00 minimum bid price. See, e.g., Rule
5550(a)(2) (Primary Equity Security listed on the Nasdaq Capital
Market); Rule 5450(a)(1) (Primary Equity Security listed on the
Nasdaq Global or Global Select Markets). Upon a company's failure to
satisfy the applicable Bid Price Requirement, Rule 5810(3)(A)
provides for an automatic compliance period of 180 calendar days for
the company to achieve compliance with the Bid Price Requirement.
Cf. NYSE American Company Guide Section 1003(f)(v), which discusses
low selling price issues but does not impose a fixed minimum price
requirement nor a timeline for how long a company could remain below
$1.00.
\4\ Rule 5005(a)(35) defines ``Publicly Held Shares'' as: shares
not held directly or indirectly by an officer, director or any
person who is the beneficial owner of more than 10 percent of the
total shares outstanding.
\5\ See, e.g., Rules 5550(a)(3) and (4) (requiring 300 public
holders and at least 500,000 Publicly Held Shares for Primary Equity
Securities listed on the Nasdaq Capital Market) and Rules
5450(a)(2), 5450(b)(1)(B), 5450(b)(2)(B) and 5450(b)(3)(B)
(requiring 400 total holders and, depending on other characteristics
of the company, either 750,000 or 1.1 million Publicly Held Shares
for Primary Equity Securities listed on the Nasdaq Global Market).
Upon a company's failure to satisfy the applicable holder or number
of Publicly Held Shares requirement, Rule 5810(c)(2)(A) allows the
company a 45-calendar day period to provide a plan to regain
compliance to Nasdaq Staff and Rule 5810(c)(2)(B) provides that
Nasdaq staff may grant an extension of up to 180 calendar days for
the company to achieve compliance.
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Specifically, Nasdaq is proposing to amend Rule 5810(c)(3)(A) to
provide that a company will not be considered to have regained
compliance with its Bid Price Requirement if the company takes an
action to achieve compliance with that requirement (e.g., a reverse
stock split), and that action results in the company's security falling
below the numeric threshold for another listing requirement, without
regard to any compliance process otherwise available for that listing
requirement.
For example, consider a company listed on the Nasdaq Capital Market
(``Company A'') that has 1,600,000 Publicly Held Shares. In order to
regain compliance with the Bid Price Requirement under Rule 5550(a)(2),
Company A effects a reverse stock split at a ratio of 1-for-4. This
reverse stock split initially increases Company A's stock price above
$1.00. Assuming Company A thereafter maintains a closing bid price
above $1.00 for ten (10) consecutive business days, under current Rule
5810(c)(3)(A), Company A will achieve compliance with the Bid Price
Requirement at the conclusion of the tenth (10th) consecutive business
day.\6\ However, in this example, at the same time that the reverse
stock split increased Company A's stock price, the 1-for-4 reverse
stock split also reduced the number of Publicly Held Shares from
1,600,000 to 400,000, causing Company A to no longer satisfy the
minimum number of Publicly Held Shares required to remain listed on the
Nasdaq Capital Market.\7\ As a result, under these circumstances, the
reverse stock split would allow Company A to regain compliance with the
Bid Price Requirement of Rule 5550(a)(2) while at the same time causing
non-compliance with the minimum Publicly Held Shares requirement of
Rule 5550(a)(4). Under Nasdaq's current rules, Nasdaq would notify the
company about this new deficiency and the company would be afforded 45
calendar days to submit a plan to regain compliance and could be
afforded up to 180 calendar days to regain compliance.\8\
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\6\ See Rule 5810(c)(3)(A) providing that a company achieves
compliance during any compliance period by meeting the applicable
standard for a minimum of 10 consecutive business days during the
applicable compliance period, unless Staff exercises its discretion
to extend this 10-day period as discussed in Rule 5810(c)(3)(H).
\7\ The continued listing requirement for publicly held shares
on the Nasdaq Capital Market is 500,000 Publicly Held Shares. See
Rule 5550(a)(4).
\8\ See Rule 5810(c)(2) and IM-5810-2.
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Nasdaq believes that it is not appropriate for a company to receive
additional time to cure non-compliance with such newly violated listing
standard. Nasdaq is therefore proposing this rule change to prevent
companies from benefiting from additional time for the subsequent
deficiency that was ultimately caused by the company's non-compliance
with the Bid Price Requirement.
Under the proposed amendment, Company A in the example above would
continue to be considered non-compliant with the Bid Price Requirement
until both the new
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Publicly Held Shares deficiency is cured and thereafter the company
maintains a $1.00 bid price for a minimum of ten (10) consecutive
business days.\9\ All of this must be accomplished during the
compliance period applicable to the initial Bid Price Requirement
deficiency. Thus, the proposed rule would not allow Company A to submit
a plan to regain compliance with the Publicly Held Shares requirement
and would instead require Company A to regain compliance with both
rules within the applicable compliance period for the Bid Price
Requirement pursuant to Rule 5810(3)(A).
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\9\ Nasdaq Staff could exercise its discretion under Rule
5810(c)(3)(H) to extend this 10-day period to up to 20 days.
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Nasdaq believes the proposed amendment will protect investors and
provide additional clarity to companies and market participants by
enhancing the quality of a compliance determination following a
company's deficiency for failure to comply with the Bid Price
Requirement.\10\
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\10\ Nasdaq is considering other changes to the delisting
process applicable to companies that are non-compliant with the Bid
Price Requirement. Any such changes will be subject to a separate
rule filing.
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2. Statutory Basis
The Exchange believes that its proposed change to Rule
5810(c)(3)(A) is consistent with Section 6(b) of the Act,\11\ in
general, and furthers the objectives of Section 6(b)(5) of the Act,\12\
in particular, in that it is designed to protect investors and the
public interest. The proposed rule change is designed to enhance
Nasdaq's listing standards, thereby strengthening the quality of listed
companies and protecting investors. Specifically, the proposal would
protect investors by preventing a company from requesting or receiving
a compliance determination and communicating to investors that it has
regained compliance with the Listing Rules until it also has cured any
concerns with numeric listing requirements caused by its actions to
cure the initial Bid Price Requirement deficiency.
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\11\ 15 U.S.C. 78f(b).
\12\ 15 U.S.C. 78f(b)(5).
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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 Exchange does not expect
that its proposal will have an adverse impact on competition among
listed companies because the proposed change will apply equally to all
similarly situated companies seeking to regain compliance with the Bid
Price Requirement and will confer no relative advantage or disadvantage
upon any listed company. Further, the Exchange does not expect that its
proposal will have an adverse impact on competition with other listed
venues. The market for listing services is extremely competitive and
listed companies may freely choose alternative venues for listing. Such
other venues will remain free to adopt similar rules, if they view them
as advantageous, or to maintain a rulebook with no minimum price
requirement to the extent allowed by the Commission.\13\ As such, the
Exchange does not believe that the proposed rule change will impose an
unnecessary or inappropriate burden on competition.
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\13\ See NYSE American Company Guide Section 1003(f)(v), which
discusses low selling price issues but does not impose a fixed
minimum price requirement nor a timeline for how long a company
could remain below $1.00.
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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#5624233a337b35393b3b333822251625333578313920"><span class="__cf_email__" data-cfemail="cdbfb8a1a8e0aea2a0a0a8a3b9be8dbea8aee3aaa2bb">[email protected]</span></a>. Please include
file number SR-NASDAQ-2024-029 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.
All submissions should refer to file number SR-NASDAQ-2024-029. 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-2024-029 and should
be submitted on or before July 30, 2024.
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\14\ 17 CFR 200.30-3(a)(12).
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\14\
Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2024-15038 Filed 7-8-24; 8:45 am]
BILLING CODE 8011-01-P
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