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December 20, 2024

Initial Listing Standards: Nasdaq Proposes Modification to Liquidity Requirements

Yesterday, the SEC posted this notice & request for comment on a proposed Nasdaq rule change that would amend Listing Rules 5405 and 5505 to:

– Require that a company listing on the Nasdaq Global Market or Nasdaq Capital Market in connection with an IPO satisfy the applicable minimum Market Value of Unrestricted Publicly Held Shares (“MVUPHS”) requirement solely from the proceeds of the offering; and

– Make similar changes affecting companies that uplist to Nasdaq from the OTC market in conjunction with a public offering.

The notice explains the rationale for the proposal:

Nasdaq Listing Rules require a company to have a minimum Market Value of Unrestricted Publicly Held Shares. For initial listing on the Nasdaq Global Market, a company must have a minimum MVUPHS of $8 million under the Income Standard, $18 million under the Equity Standard, and $20 million under either the Market Value or Total Assets/Total Revenue Standards. For initial listing on the Nasdaq Capital Market, a company must have a minimum MVUPHS of $5 million under the Net Income Standard, and $15 million under either the Equity or Market Value of Listed Securities Standards.

Unrestricted Publicly Held Shares are shares that are not held by an officer, director or 10% shareholder of the company and which are not subject to resale restrictions of any kind. In the case of a company listing in conjunction with a public offering, previously issued shares registered for resale (“Resale Shares”), and not held by an officer, director or 10% shareholder of the company, are counted as Unrestricted Publicly Held Shares in addition to the shares being sold in the offering. . . .

Nasdaq has observed that the securities of companies that meet the applicable MVUPHS requirement by including Resale Shares have experienced higher volatility on the date of listing than those of similarly situated companies that meet the requirement with only the proceeds from the offering. Nasdaq believes that the Resale Shares may not contribute to liquidity to the same degree as the shares sold in the public offering.

The SEC is soliciting comments on the proposed rule change.

– Meredith Ervine 

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