Nasdaq’s proposal to impose a new $5 million minimum market cap requirement for continued listing, like a few other stock exchange proposals in recent years, has gone through a long process already. The SEC extended the time to act on this proposal back in March, and then the day before the Commission was required to take action, an order was posted instituting proceedings to determine whether to approve or disapprove the proposed rule change, soliciting additional comment on specific areas of concern. On Monday, the SEC posted a new notice to solicit comments on a revised proposal from Nasdaq.

We already shared some of the critical comments that had been received as of April. After that date, the Commission received comments from the Security Traders Association, Better Markets, OTC Markets Group, PTG, Securities Industry and Financial Markets Association, and Citadel, all in support of the initial proposal, and comments from law firms, three listed companies and the Small Public Company Coalition, all opposing.

In its amended proposal, Nasdaq addresses concerns by commentators by giving the Hearings Panel more discretion:

As a preliminary matter, Nasdaq acknowledges the position taken by some of the Objecting Commenters that some companies with a low market capitalization may meaningfully recover and therefore their continued listing on the Exchange maybe appropriate. Accordingly, in this Amendment No. 1, as described above, Nasdaq now proposes to modify the Initial Proposal, which would have prevented a Hearings Panel from reinstating a company that failed to maintain a minimum of $5 million MVLS. Instead, Nasdaq now proposes to adopt Listing Rule 5815(c)(1)(I) to provide that in the case of a company that received a Staff Delisting Determination due to a failure to maintain MVLS of at least $5 million under Rule 5450(a)(3) or 5550(a)(6), the Hearings Panel where it deems appropriate, may grant an exception for a period not to exceed 180 days from the Staff Delisting Determination for the company to demonstrate that it meets all requirements for initial listing.

Nasdaq believes that this approach appropriately balances the Exchange’s obligation to protect investors while allowing a company whose operational and financial difficulties are indeed temporary to demonstrate to an independent Hearings Panel that continued listing is appropriate. With this change, Nasdaq believes that the revised proposal addresses concerns raised by several commentators arguing that the Initial Proposal did not accommodate scenarios where situational factors result in temporary declines in a company’s valuation are unrelated to its actual financial health.

Nasdaq determined not to address other comments. For example:

– “Several commenters raised concerns regarding the removal of the automatic stay of suspension pending Hearings Panel review. Nasdaq continues to believe that immediate suspension from trading for a company that failed to maintain $5 million MVLS threshold over 30 consecutive business days is appropriate.”

– “Nasdaq also continues to believe that it is appropriate to issue a Staff Delisting Determination to a company for failure to maintain MVLS of at least $5 million over 30 consecutive business days.”

– “Nasdaq also continues to believe that providing a cure period is not appropriate where a company failed to maintain MVLS of at least $5 million over 30 consecutive business days.”

– “[S]everal commenters stated that the $5 million MVLS threshold, coupled with automatic suspension after 30 consecutive business days, could increase the potential for manipulative trading and market abuse in an effort to drive down the value of a company’s stock, causing a company to be delisted. Nasdaq notes that market manipulation is illegal. Nasdaq believes that if Objecting Commenters are in possession of evidence indicating that federal securities laws are violated, they should submit such evidence to the appropriate authorities for investigation and enforcement.”

Notably, this is not a notice of filing & immediate effectiveness. Comments on the amended proposal are due 15 days after publication in the Federal Register.

– Meredith Ervine