TheCorporateCounsel.net

Yesterday, the SEC approved a change to Nasdaq’s initial listing standards that will raise the bar for the liquidity requirements that apply to IPO listings and OTC uplistings in connection with a public offering. Meredith blogged about Nasdaq’s initial proposal back in December, which was subsequently amended to clarify a few details. Here’s what the rule will mean for IPOs:

First, the Exchange proposes to modify Nasdaq Listing Rules 5405(b) and 5505(b) to provide that a company listing in connection with an IPO, including through the issuance of American Depository Receipts, must satisfy the applicable Market Value of Unrestricted Publicly Held Shares requirement for each initial listing standard for primary equity securities with the proceeds of that offering.

Under the amended listing standards, previously issued shares that are registered for resale will no longer count in demonstrating liquidity. Nasdaq stated that it has observed that the companies that meet the applicable Market Value of Unrestricted Publicly Held Shares requirement through an IPO 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 – and that the Resale Shares may not contribute to liquidity to the same degree as the shares sold in the offering.

Here’s more detail on the change for companies uplisting from the OTC:

Secondly, with respect to a company uplisting from the OTC market, the Exchange proposes to modify the alternative to the ADV Requirement in Nasdaq Listing Rules 5405(a)(4) and 5505(a)(5). As revised, a company relying on this alternative will be required to satisfy the applicable Market Value of Unrestricted Publicly Held Shares requirement with only the proceeds from the offering. As a result, the Exchange also proposes to modify Nasdaq Listing Rules 5405(a)(4) and 5505(a)(5) to increase the size of the required public offering for this alternative to the ADV Requirement from $4 million to $5 million for Nasdaq Capital Market applicants and $8 million for Nasdaq Global Market applicants to align with the minimum Market Value of Unrestricted Publicly Held Shares requirement for each market.18 If the company qualifies under a standard other than the income standard, the minimum raise instead will have to satisfy the Market Value of Unrestricted Publicly Held Shares requirement of the applicable standard.

Nasdaq indicated that the proposed changes will become operative 30 days after approval by the Commission. The Commission has approved the proposal on an accelerated basis – although people are also free to continue to submit comments for a limited additional time.

– Liz Dunshee