Last week, Nasdaq posted two other proposed rule changes that would modify certain initial and continued listing requirements. As detailed by this Sheppard Mullin blog, the proposals reflect the following key changes:

– Minimum Market Value of Publicly Held Shares: A new $15 million minimum public float is proposed for companies seeking to list under the net income standard.

– Accelerated Suspension & Delisting Process: Companies falling below a $5 million market value of listed securities — while also failing other compliance criteria — will be subject to swifter suspension and delisting.

– Special Rules for China-Based Companies: Companies principally operating in China would now face a $25 million minimum initial public offering (IPO) proceeds threshold for new listings.

Here is an excerpt from Nasdaq’s submission to the SEC explaining the reasoning for the first two proposed changes detailed above:

Minimum Market Value of Publicly Held Shares

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 . . .

Nasdaq recently modified the liquidity requirements for initial listing such that shares registered for resale are no longer counted as Unrestricted Publicly Held Shares. As a result, a newly listing company listing in connection with an initial public offering must meet the MVUPHS based on shares being sold in the offering . . .

Following this change, Nasdaq Staff has observed an increase in the number of companies applying for listing based on Nasdaq’s net income requirement, which requires a lower MVUPHS than the other standards. As noted above, Nasdaq Staff has observed problematic trading in companies with low public floats and liquidity, and Nasdaq is concerned that companies initially listing with just $5 million or $8 million MVUPHS on the Nasdaq Capital or Global Markets, respectively, may not trade in a manner supportive of price discovery . . .

Accelerated Suspension & Delisting Process

Nasdaq believes that once the market identifies significant problems in a company otherwise deficient in the listing standards by assigning a very low market value, that company is no longer appropriate for continued trading on Nasdaq because challenges facing such companies, generally, are not temporary and may be so severe that the company is not likely to regain compliance within the prescribed compliance period and sustain compliance thereafter . . .

While Nasdaq has taken action to enhance its listing standards and more quickly delist certain companies that have repeated failures to maintain compliance with those standards, Nasdaq now proposes further enhancing investor protections by providing for suspension from Nasdaq trading and immediate delisting (rather than providing a compliance period) of any company that becomes non-compliant with a numeric listing requirement, including the bid price, market value of public float, equity, income and total assets/revenue requirements, and that has a market value of listed securities of less than $5 million.

For more, check out this Q&A with John Zecca, Nasdaq’s Executive Vice President and Global Chief Legal, Risk, & Regulatory Officer.

These proposed changes are procedurally behind the proposal to accelerate the delisting and suspension of securities trading below 10 cents and the proposal to reduce initial listing requirements for companies formed by a combination with an OTC-traded SPAC since those have already been noticed for comment by the SEC. The SEC will also have to post notices and solicit comments on these proposals on its Self-Regulatory Organization Rulemaking page before approval by the Commission.

– Meredith Ervine