As Meredith recently noted, Nasdaq has been on a roll lately with its proposals. The SEC has been keeping up, too – posting notices over the past couple of weeks on a few of the proposals that we’ve been watching. For micro-caps and China-based companies, the Commission extended time to act on these relevant proposals:
1. Adopt a new continued listing requirement on minimum market cap – extended till April 29th, see our original blog here
2. Adopt additional listing criteria for companies primarily operating in China – extended till May 17th, see our original blog here (the proposal was subsequently amended)
While we don’t know for sure whether the rules will be approved, these extensions are good news for companies that might be affected if they are – e.g., you have a bit more time to consider your options if your market cap is below $5 million.
In addition to extending the period to act on recent market clean-up proposals, the SEC acted last week to approve Nasdaq’s proposal to allow for trading of “tokenized” securities during the pendency of the related DTC tokenization pilot program. Meredith blogged about Nasdaq’s original proposal last fall – it was later amended a couple of times to provide more detail about how the process works. Check out this January blog for key points about how the DTC pilot program works.
Here’s an excerpt from the SEC’s notice:
Nasdaq market participants that are eligible to participate in the DTC Pilot (“DTC Eligible Participants”) would be able to trade tokenized versions of certain equity securities and exchange traded products on the Exchange that are eligible for tokenization as part of the DTC Pilot (“DTC Eligible Securities”). According to Nasdaq, while they are actively assessing multiple methods of tokenization and trading of tokenized securities, the proposed rule change describes and applies to one method by which DTC Eligible Securities can trade on Nasdaq, using DTC to clear and settle trades in token form, per order handling instructions that DTC Eligible Participants may select upon entering their orders for DTC Eligible Securities on Nasdaq.
And:
Pursuant to the Nasdaq proposal, a tokenized share of a DTC Eligible Security must be fungible with, share the same CUSIP number and trading symbol with, and afford its shareholders the same rights and privileges as a share of an equivalent class of the traditional security for it to trade on Nasdaq. Further, Nasdaq has represented that it would trade DTC Eligible Securities “within the confines of existing securities laws and rules” and that its trading system and procedures, except as described above, would be the same regardless of whether a security is tokenized.
A tokenized share of a DTC Eligible Security and its traditional counterpart would trade on the same order book and with the same execution priority. Moreover, market data feeds would not differentiate between tokenized and traditional shares and market surveillance of tokenized and traditional securities would rely upon the same underlying data, which would continue to be accessible by Nasdaq and FINRA.
Talk about a long and storied career! Carl Hagberg started his career as an inspector of elections before handheld calculators existed, and he – and his son Peder Hagberg – are still going strong. As the Co-Editors of The Shareholder Service OPTIMIZER newsletter and magazine – as well as partners of CT Hagberg LLC, which has provided independent inspectors of election since 1992, Carl and Peder are a great source of info on tabulation issues, annual meeting procedures, and “who’s who” in the public company space.
So, as we head into annual meetings, this 35-minute episode of the “Timely Takes” podcast is living up to its name in being especially timely. Meredith was joined by Carl and Peder to discuss:
1. How Carl and Peder came to be experts on the proxy voting process
2. Risks for companies that exclude shareholder proposals in the absence of traditional no-action relief
3. Why this is the year to consider improving your virtual shareholder meeting practices
4. Bad, good, better and best practices for virtual shareholder meetings
5. How companies typically use the option to prerecord portions of the virtual meeting
6. Tips for engaging inspectors
7. How Carl and Peder are trying to improve retail vote turnout and how you can too
As always, if you have insights on a securities law, capital markets or corporate governance issue, trend or development that you’d like to share in a podcast, we’d love to hear from you. Email Meredith and/or John at mervine@ccrcorp.com or john@thecorporatecounsel.net.
Earlier this month, the Department of Justice announced its first-ever department-wide corporate enforcement policy, which applies to all corporate criminal cases.
The policy – formally known as the “Corporate Enforcement and Voluntary Self-Disclosure Policy” or “CEP” – is intended to promote consistency, transparency, and predictability and to incentivize voluntary self-disclosure and remediation. It supersedes all existing policies – but seems to incorporate many of their principles.
This Sullivan & Cromwell memo summarizes key changes from existing policies. As far as what the new approach means for companies, the S&C team shared these thoughts in their memo:
The new CEP now ensures that — with the exception of antitrust cases that have long been subject to the Antitrust Division’s unique leniency program — the concrete benefits of voluntary self-disclosure, cooperation, and remediation offered by the Department in corporate criminal cases are governed by a single, uniform policy. For companies facing potential criminal exposure under all other federal criminal statutes, the new policy brings a degree of predictability and consistency that did not exist under the prior regime, where the potential benefits and aggravating circumstances depended on which office or component was handling the matter. The benefits of the CEP are now available across the board, regardless of where a case lands.
The tradeoff is that the prior patchwork of component-specific policies offered companies some degree of flexibility and, in certain instances, more favorable terms. While the new Department-wide CEP makes several changes to the prior Criminal Division CEP, it hews closely to it, and companies can continue to look to precedent cases decided under prior policies to get a sense of what to expect going forward.
At PLI’s “SEC Speaks” conference last week, the Corp Fin Staff shared a status update on the disclosure review program, which had been significantly affected by last year’s record-breaking government shutdown. Here are a few key takeaways (based on our notes from the event and subject to the standard SEC disclaimers):
• The shutdown created a “pens down” situation where staff couldn’t review in-process filings – and by the time it ended, 1,000+ registration statements had accumulated, and of course more kept coming in after the government reopened. When the government reopened on November 13, it was taking about 70 days for the Staff to issue its first round of comments on initial registration statements.
• Now, time-to-first-comment is averaging around 30 days – closer to normal – with some reviews completing the first round under 30 days. In the time period from November 13 to March 19, the Staff processed initial round comments on over 600 filings – compared to just over 300 in the same period the prior year. Not only did they double the volume, they did it with a reduced headcount! People are working very hard.
• The annual review program under Sarbanes-Oxley Section 408 was paused to deal with the registration statement backlog, but it has now been restarted. The Staff will comply with the mandate, though the number of reviews will be lower than in prior years.
• Comment letter dissemination is approximately five months behind. That means that if you’re tracking comment letter trends or volume, the data will look artificially low, and you should know that it’s a function of the delay, not a reduction in comments. Staff is looking at ways to automate what is currently a manual process.
On that last point, one thing that slows down comment letter dissemination is the need to scrub personally identifiable information. If you’re submitting correspondence or exhibits, double-check for bank account numbers, addresses, and tax IDs before you file. Cleaning up on the front end helps Staff on the back end.
Be sure to tune in at 2 pm Eastern tomorrow for our webcast – “From S-1 to 10-K: Avoiding Disclosure Pitfalls” – to hear Tamara Brightwell of Wilson Sonsini, Brad Goldberg of Cooley, Keith Halverstam of Latham & Watkins and Julia Lapitskaya of Gibson Dunn share practical guidance on the most frequent disclosure and compliance challenges that newly public companies face – and offer insights into how to avoid the common missteps that can trigger SEC comments, investor scrutiny, and unnecessary risk. Our panelists will also address questions submitted by members in advance (the deadline was March 19th).
Topics include:
– Entering the Exchange Act Reporting Cycle
– Risk Factors, Forward-Looking Statements, and Earnings Communications
– Form 8-K Current Reports
– Form 10-K and Proxy Statement
– Mechanics of the First Annual Meeting
– SOX, Internal Controls, and Disclosure Controls in the First Year
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We will apply for CLE credit in all applicable states (with the exception of SC and NE, which require advance notice) for this 90-minute webcast. You must submit your state and license number prior to or during the live program. Attendees must participate in the live webcast and fully complete all the CLE credit survey links during the program. You will receive a CLE certificate from our CLE provider when your state issues approval, typically within 30 days of the webcast. All credits are pending state approval.
This program will also be eligible for on-demand CLE credit when the archive is posted, typically within 48 hours of the original air date. Instructions on how to qualify for on-demand CLE credit will be posted on the archive page.
Yesterday, Corp Fin issued new SEC Forms CFI 116.26 that gives small cap ATM issuers a potentially very big break. Here’s the new guidance:
Question: A company entered into a sales agreement with a named selling agent for an at-the-market offering of an amount of securities that the company reasonably expected to offer and sell. The company had an effective Form S-3 registration statement, was eligible to offer and sell securities in reliance on General Instruction I.B.1, and filed a prospectus supplement for the offering. At the time of its next Section 10(a)(3) update, the company does not meet the $75 million public float requirement of Instruction I.B.1 but remains eligible to use Form S-3 in reliance on General Instruction I.B.6 (the “baby shelf”). Will the staff object if the company continues to offer and sell the full amount of securities covered by the prospectus supplement even if that amount would exceed the offering limits of General Instruction I.B.6?
Answer: Under these circumstances, the staff will not object if the company continues offering and selling the full amount of securities covered by the prospectus supplement that was filed prior to the Section 10(a)(3) update. [March 19, 2026]
Traditionally, each Section 10(a)(3) update drew a bright line around questions concerning Form S-3 eligibility, and if an issuer no longer met the $75 million public float test, any existing ATM program would be subject to the baby shelf limitations in Instruction 1.B.6. Now, an issuer that finds itself in this position can continue to issue the full amount of the shares covered by the ATM pro supp even after the date of the Section 10(a)(3) update.
The relief granted by this CDI is relatively modest in the grand scheme of things (after all, we’re talking about ATM programs), but in taking a position that the Section 10(a)(3) update is no longer a bright line in all situations, the Staff may have crossed the Rubicon here. It will be interesting to see where that journey takes it.
Last month, Meredith blogged about Nasdaq’s proposal to offer “Fast Entry” to its Nasdaq 100 Index for mega-cap IPOs. This excerpt from a recent WSJ article summarizes how the proposal would work:
Consider a company whose total market capitalization is large enough to rank among the 40 biggest in the Nasdaq 100. Under the rule proposal, if that company does an IPO for less than 10% of its shares outstanding, it would enter the index at a weight of five times the market value of its freely tradable shares.
Say what?
If a company with a total market capitalization of $1 trillion floated only 5% of its stock in an initial offering, that would be $50 billion in freely tradable shares. Under Nasdaq’s proposal, the basis for weighting the company in the Nasdaq 100 index would be five times greater, or $250 billion.
In current market conditions, this company with $50 billion in freely tradable shares—multiplied by a factor of five—would immediately hurdle into the top third of all stocks in the index.
Nasdaq’s proposal – which is in the consultation phase – is made in contemplation of some mega-IPOs that are likely to come down the pike this year, including SpaceX (which has reportedly conditioned its willingness to list on Nasdaq on adoption of the proposal), Open AI, and Anthropic. However, the proposal’s going over like a lead balloon with some institutional investors. Here’s another excerpt from the WSJ article:
The likely result, several asset managers tell me, is that with the company looming five times larger in the benchmark, index funds and other big investors would be under pressure to buy more of the stock, giving an artificial boost to its performance.
If Nasdaq adopts the proposed rule, “you’re creating false demand that’s going to affect the stock price because of the lack of liquidity,” says Ken Mertz, chief investment officer at Emerald Advisers, an asset-management firm in Leola, Pa. “Higher demand would create greater volatility and potential harm to market efficiency. And it would bring more speculation into the marketplace.”
Other commentators are more blunt in their criticism. For example, Michael Burry, of “The Big Short” fame, says that George Noble’s Substack piece on the proposal is a must read. Mr. Noble kicks off his critique with a statement that “This is the most SHAMELESS structural manipulation of a major index I’ve ever seen. . . ” Spoiler Alert: He doesn’t get more positive on the proposal from there.
We’ve recently passed the 13,000-query mark in our “Q&A Forum.” Of course, as Broc would always point out when he wrote one of these Q&A milestone blogs, the “real” number is much higher since many queries have others piggy-backed upon them. Over the years, we’ve collectively developed quite a resource. Combined with the “Q&A Forums” on our other sites, there have been well over 35,000 individual questions answered – including over 11,000 that Alan Dye has answered over on Section16.net.
As always, we welcome – in fact, we actively encourage – your input into any query you see that you think you can shed some light on for other members of our community. There is no need to identify yourself if you are inclined to remain anonymous when you post a reply (or a question). And of course, remember the disclaimer that you need to conduct your own analysis & that any answers don’t constitute legal advice. Also, please keep in mind that the Q&A Forum is not an outsourced research service – we all have day jobs and aren’t in a position do research projects!
Don’t miss out on the Q&A Forum or any of our other practical resources – checklists, handbooks, webcasts, members-only blogs and more – which so many securities & corporate lawyers know are critical to practicing in this space. If you’re not yet a subscriber, you can sign up for a membership today by emailing sales@ccrcorp.com or by calling us at 800-737-1271.
While much of the DExit debate has focused on differences in the way director and controlling shareholder actions will be evaluated under the legal standards of different states, investor relations concerns also need to be top of mind for companies considering reincorporation. A recent FTI memo discusses some of the non-legal considerations associated with DExit proposals. This excerpt highlights factors companies should consider during the evaluation stage for a possible move from Delaware:
– Candidly Assess Current Relationship With Shareholders. Requesting shareholder approval to reincorporate does not happen in a vacuum. History matters. When shareholders are voting, they will be assessing more than just the merit of the proposal. They will be assessing the history of engagement with the Company, the Company’s current shareholder rights profile, the Board’s rapport with shareholders at large, and, if applicable, any response to previous shareholder dissent. Shareholders need to trust the Board in order to support such a proposal, and trust is established well before the filing of a preliminary proxy.
– Start Early. Companies should thoroughly assess the merit of reincorporation, including to which jurisdictions, alongside legal counsel. Shareholders will want to see that the Board took the appropriate steps to determine this was in the best interest of shareholders, and this process was not rushed. Further, reincorporation requires the filing of a preliminary proxy and a deliberate campaign-like approach to secure shareholder support (more on that below), which underscore the importance of starting early.
– Avoid Surprises (for your shareholders and for you).
Engage Shareholders Early. Companies should have regular dialogue with their top investors on governance matters, establishing a relationship with them before requesting their support on a proposal like reincorporation. In these engagements, companies can discuss the topic of reincorporation at a high level with their top shareholders and seek their views on the topic.
Conduct a Voting Outlook. Prior to requesting shareholder approval to reincorporate, a Company should have a rough idea of which shareholders are generally supportive, unsupportive, or “on the fence” when it comes to reincorporation proposals. Analysis can inform a likely vote outcome and can identify what levers the company has available to increase the likelihood of shareholder support.
– Monitor the Landscape. The legal frameworks that may make reincorporation more or less appealing can change over time. We expect shareholders’ views will also evolve. Boards considering reincorporating should closely monitor these developments.
The memo also includes recommendations to boards and management teams that have gone beyond the evaluation stage and are seeking shareholder approval of a reincorporation proposal. Among other things, FTI stresses the importance of a cohesive campaign to secure shareholder support, the need for a compelling company-specific rationale behind reincorporating that goes beyond “less litigation,” and the extent to which reincorporation may be perceived to put shareholder rights at risk.
