January 26, 2009

Facing Market Realities: NYSE Temporarily Lowers Market Cap Requirement

In its first accomodation for the current market environment, the NYSE filed a rule change (see the press release) with the SEC last week that would temporarily reduce the average market capitalization required under Section 802.01B of the NYSE’s Listed Company Manual from $25 million to $15 million.

Although the rule change has not been published by the SEC, the rule change will be effective upon filing – if the SEC waives a 30-day operative delay, which it is expected to do. This temporary reduction would apply through April 22nd (although the NYSE could extend the period if market conditions remain the same). We will be posting memos in our “Delisting” Practice Area.

There are quite a few NYSE companies for which this will be an important accommodation. Note that this approach by the NYSE is different than Nasdaq’s approach. As I understand it, the NYSE is not willing to totally waive or suspend listing standards as has been Nasdaq’s practice. Rather, the NYSE is looking to take this step of temporarily lowering the market cap standard.

Nasdaq Companies: Even Accommodations Don’t Help

If you do a recent search of Form 8-Ks for Nasdaq companies that use the term “delisting,” you will see that there are quite a lot of Nasdaq companies that are voluntarily delisting due to non-compliance (eg. Neopharm). These companies don’t appear to be taking the step of appealing a delisting notification, probably because there is no end in sight for the current market decline so there is nothing they can do to address stockholder’s equity or market capitalization requirements. These companies are not going into bankruptcy – but instead are now being traded on the OTC Bulletin Board, OTCQX market tier and the Pink Sheets.

Schapiro Is “In”

On Thursday, the US Senate confirmed Mary Schapiro as the new SEC Chair, as noted in this article. This followed Schapiro’s responses to Senator Carl Levin, in which she said she favored advisory votes on executive compensation and wanted to smaller companies to start complying with Section 404 of Sarbanes-Oxley (instead of continuing to grant them one-year exemptions from the law).

Having now observed a number of SEC Chairs over the years, I have found the proof is in the pudding – we really don’t know what a Chair will be like until they actually do something. Some Chairs who people thought might be great, turned out to be not so hot – and others people thought would be captured by industry, turned out to be quite good. Time is an excellent judge of SEC Chairs.

A few weeks ago, I conducted a poll regarding what you thought about Mary’s prospects as a SEC Chair. Here is a pie chart of the results:

funny pictures
moar funny pictures

– Broc Romanek