As Meredith noted in the blog back in early March, Nasdaq had proposed to adopt IM-5101-4, which would provide the exchange with the authority to delist a security in a situation where the Commission has previously suspended trading of that security under Exchange Act Section 12(k), and Nasdaq determines that it is appropriate and in the public interest to proceed with the delisting. The Nasdaq proposal was not approved by the Commission as it was originally submitted, and on April 16, 2026, the Commission designated a longer period within which to take action on the proposed rule change. Nasdaq submitted a superseding amendment on May 21, and the Commission published a notice and order to solicit comments on the amendment yesterday. The Commission specified that the rule change will go effective on the thirtieth day after the date of publication of notice in the Federal Register.

The Commission’s notice describes Nasdaq’s proposal, as amended, as follows:

The Exchange proposes to adopt Nasdaq Rule IM-5101-4 to provide that where a security exhibits trading activity that is indicative of potential manipulation, and the Commission has implemented a temporary trading suspension of that security pursuant to Section 12(k) of the Act (“Section 12(k) suspension”), the Exchange may exercise its authority under Nasdaq Rule 5101 to delist the security when it determines that doing so is necessary to protect investors. As proposed, the Exchange would be permitted to exercise the discretionary authority even when the security and the listed company otherwise satisfy all applicable Nasdaq listing standards at the time of determination.

The Exchange states that it would exercise its discretion to delist a company on a case-by-case basis, and in applying that discretion, it would consider whether the listed securities may be susceptible to manipulation based on factors related to concerns the Exchange and other regulators have identified with companies that previously were the subject of problematic or unusual trading, including considerations related to the company’s advisors (including auditors, underwriters, law firms, brokers, clearing firms, or other professional service providers that are currently or have in the past worked for the company). In particular, in making the determination to delist a security, the Exchange will consider all relevant facts and circumstances [including a list of specified facts and circumstances described in the SEC’s notice].

Proposed Nasdaq Rule IM-5101-4 specifies that because trading activity that is indicative of potential manipulation may occur when a security lacks sufficient public float, investor base, or trading interest to support the depth and liquidity necessary to maintain a fair and orderly market, the Exchange may use this authority even where the potential manipulation appears to be driven by third parties with no known connection to the company, and even where Nasdaq cannot determine whether the company or any associated individual was involved. Further, the Exchange will consider evidence provided by the company that there is sufficient public float, investor base, or trading interest.

Under the proposal, Exchange Staff will issue a Staff Delisting Determination under Nasdaq Rule 5810(c)(1) if the Exchange determines to delist a security pursuant to this authority. A company can seek review of such a Staff Delisting Determination pursuant to Nasdaq Rule 5815.

One of the areas of comment on the original Nasdaq proposal focused on the discretion that Nasdaq may exercise in determining whether to delist a security in this situation, and the Commission notes that the factors are based, in part, on factors used in Nasdaq Rule IM-5101-3, which provides that the exchange may use its discretionary authority under Nasdaq Rule 5101 to deny initial listing to a company based on factors that make the company’s security susceptible to manipulation, and also include additional considerations “specific to continued listing and Section 12(k) suspensions, including, but not limited to, trading patterns, evidence of third-party social media activity, disclosure of material news, and recent securities issuances.” The notice also indicates that proposed Nasdaq Rule IM-5101-4 provides that the exchange will consider “any other material information, whether mitigating or concerning, provided by the company or otherwise available in the record of the matter; and will consider evidence provided by the company that there is sufficient public float, investor base, or trading interest to support a fair and orderly market.”

As acknowledged in the notice, Section 12(k) suspension proceedings remain very rare, but this rule change will provide Nasdaq with an ability to react to those unusual circumstances when warranted.

– Dave Lynn