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At this time last year, Liz noted that the SEC has issued an order to approve Nasdaq’s proposal to require a listed company conducting a reverse stock split to: (i) notify Nasdaq about certain details of the reverse stock split at least 5 business days (no later than noon ET) prior to the anticipated market effective date, and (ii) make public disclosure about the reverse stock split at least 2 business days (no later than noon ET) prior to the anticipated market effective date. In March 2024, an additional change to the rule and Company Event Notification Form was adopted to further clarify the requirements.

Last week, the SEC posted an order contemplating further changes to Nasdaq’s reverse stock split notice requirements. The order notes:

Nasdaq is now proposing to amend the deadline for a company to notify Nasdaq of a reverse stock split from 5 business days to 10 calendar days in order to conform to the requirements of SEC Rule 10b-17 of the Act.

Specifically, Rule 10b-17(a)(2) and (b) of the Act, require issuers to provide notice to FINRA (formerly the National Association of Securities Dealers, Inc.) no later than 10 calendar days prior to the date of record to participate in a stock split or reverse stock split, unless the impacted security is traded on a national securities exchange with a substantially comparable requirement to those set forth in Rule 10b-17(b)(1).

Currently, Rule 5250(e)(7) and IM-5250-3 require a company conducting a reverse stock split to notify Nasdaq about certain details of the reverse stock split by submitting a complete Company Event Notification Form and a draft of the disclosure required by Rule 5250(b)(4) at least 5 business days (no later than 12:00 p.m. ET) prior to the anticipated market effective date, which includes all the information required by Rule 10b-17 applicable to reverse stock splits.

It has come to Nasdaq’s attention that Nasdaq’s current rule may not be considered substantially comparable to the 10 calendar-day prior notice required in Rule 10b-17 of the Act. Accordingly, Nasdaq is proposing to amend the deadline for a company to notify Nasdaq of a reverse stock split from no later than 12:00 p.m. ET 5 business days to 10 calendar days prior to the anticipated market effective date of the reverse stock split to ensure that Rule 5250(e)(7) and IM-5250-3 are substantially comparable to Rule 10b-17 and, therefore, that companies are compliant with Rule 10b-17 when they give notice under those rules. Nasdaq is not amending the requirement to provide public disclosure under Rule 5250(b)(4) at least 2 business days (no later than 12:00 p.m. ET) prior to the anticipated market effective date. Nasdaq still believes that this timeframe provides sufficient notice to the public about reverse stock splits.

Got that? This proposed Nasdaq rule change is effective immediately pursuant to Section 19(b)(3)(A)(iii) of the Exchange Act and Exchange Act Rule 19b-4(f)(6). The order provides that the proposed rule change will become operative on January 30, 2025, in order to provide companies that have already planned action for a reverse stock split under the current rule’s timeframe with the ability to effect their reverse stock split under that schedule.

– Dave Lynn