TheCorporateCounsel.net

Yesterday, the SEC posted notice and immediate effectiveness of a Nasdaq amendment to Listing Rule 5505, which will require a minimum $4 price in all instances for initial listing on the Nasdaq Capital Market. The change will eliminate the alternative price standards that had permitted the listing of securities priced between $2 and $4 that were not within the Exchange Act Rule 3a51-1(g) definition of “penny stocks” due to meeting certain equity, net income, and/or market value of listed securities standards – along with a threshold amounts of net tangible assets and operating history. Under the amendment:

Nasdaq is proposing to remove Listing Rule 5505(a)(1)(B), and, as a result, require all companies seeking to list under the Initial Listing Standards to have a minimum stock price of $4.00. The $4.00 standard is consistent with the initial listing requirements of other national securities exchanges, whereas the current Alternative Price Requirement is generally lower than the minimum price required for listing on other national securities exchanges.

Because companies that originally listed under the Alternative Price Requirement remain listed, the Exchange is proposing to keep Listing Rule IM-5505-2. The rule requires Nasdaq to publish on its website a list of any company that initially listed under the Alternative Price Requirement, which no longer satisfies the net tangible assets or revenue test contained in former Rule 5505(a)(1)(B), and which does not satisfy any of the other exclusions from being a penny stock contained in Rule 3a51-1 under the Act. Nasdaq will maintain this list on its website for as long as any companies remain listed that could be subject to that condition.

The Exchange is also proposing to include a summary description of former Listing Rule 5505(a)(1)(B) within Listing Rule IM-5505-2, which describes the price requirement that companies that initially list under the Alternative Price Requirement must satisfy and Nasdaq’s ongoing monitoring of such companies for compliance with the penny stock rules. The proposed summary is intended to provide clarification for the references to the former rule that remain in Listing Rule IM-5505-2. Lastly, the Exchange is proposing to make conforming changes to Listing Rule IM-5505-2 to clarify that Listing Rule 5505(a)(1)(B) is a “former” rule.

Nasdaq intends to make the proposed rule change operative 30 days after the date of the filing, which was September 30th, in order to allow companies that have taken substantial steps to list under the current rules to complete the process. With the rule being immediately effective, SEC rules also provide that at any time within 60 days of the filing of the proposed rule change, the Commission summarily may temporarily suspend such rule change if it appears to the Commission that such action is necessary or appropriate in the public interest, for the protection of investors, or otherwise in furtherance of the purposes of the Act.

In its proposal, Nasdaq noted that it had initially adopted its Alternative Price Requirement to enhance the competition among exchanges – particularly NYSE American. But NYSE American also recently amended its rule to remove the ability to list securities priced below $4 (Meredith blogged about the proposal back in February), so Nasdaq is doing the same.

This rule is the latest in several “market quality” changes that Nasdaq has made in recent months – including the currently stayed “minimum market value” rule that I blogged about earlier this week. And as an update to the “market modernization” efforts that the exchange is also making, an amendment to Nasdaq Equity 11, Rule 11890 (Clearly Erroneous Transactions) in light of the Commission’s approval of Overnight Protected Bands for 23/5 Trading, was also published yesterday.

– Liz Dunshee