[Federal Register Volume 85, Number 14 (Wednesday, January 22, 2020)]
[Notices]
[Pages 3736-3739]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-00917]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-87982; File No. SR-NASDAQ-2020-001]
Self-Regulatory Organizations; The Nasdaq Stock Market LLC;
Notice of Filing of Proposed Rule Change To Modify the Delisting
Process for Securities With a Bid Price Below $0.10 and for Securities
That Have Had One or More Reverse Stock Splits With a Cumulative Ratio
of 250 or More to One Over the Prior Two Year Period
January 15, 2020.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act'') \1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that
on January 2, 2020, The Nasdaq Stock Market LLC (``Nasdaq'' or
``Exchange'') filed with the Securities and Exchange Commission
[[Page 3737]]
(``Commission'') the proposed rule change as described in Items I and
II below, which Items have been prepared by the Exchange. The
Commission is publishing this notice to solicit comments on the
proposed rule change from interested persons.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The Exchange proposes to modify the delisting process for
securities with a bid price below $0.10 and for securities that have
had one or more reverse stock splits with a cumulative ratio of 250
shares or more to one over the prior two year period.
The text of the proposed rule change is available on the Exchange's
website at http://nasdaq.cchwallstreet.com, at the principal office of
the Exchange, and at the Commission's Public Reference Room.
II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, the Exchange included statements
concerning the purpose of and basis for the proposed rule change and
discussed any comments it received on the proposed rule change. The
text of these statements may be examined at the places specified in
Item IV below. The Exchange has prepared summaries, set forth in
sections A, B, and C below, of the most significant aspects of such
statements.
A. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
1. Purpose
Nasdaq proposes to modify the delisting process for securities with
a bid price below $0.10 for ten consecutive trading days and for
securities that have had one or more reverse stock splits with a
cumulative ratio of 250 shares or more to one over the prior two year
period (meaning that an investor would hold one share for every 250
shares or more owned at the start of the period).
Currently, Nasdaq rules require that primary equity securities,
preferred stocks and secondary classes of common stock maintain a
minimum $1.00 bid price for continued listing.\3\ Under Listing Rule
5810(c)(3)(A), a security is considered deficient with this requirement
if its bid price closes below $1.00 for a period of 30 consecutive
business days. A company with a bid price deficiency has 180 calendar
days from notification of the deficiency to regain compliance. A
company generally can regain compliance with the bid price requirement
by maintaining a $1.00 closing bid price for a minimum of ten
consecutive business days during the compliance period.\4\ Under
Listing Rule 5810(c)(3)(A)(ii), a company that lists a security on the
Nasdaq Capital Market, or transfers its listing to that market, may be
eligible for a second 180 calendar day period to regain compliance,
provided that on the last day of the first compliance period the
company meets the market value of publicly held shares requirement for
continued listing as well as all other applicable standards for initial
listing on the Capital Market and notifies Nasdaq of its intent to cure
the bid deficiency.
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\3\ See Listing Rules 5450(a)(1), 5460(a)(3), 5550(a)(2) and
5555(a)(1).
\4\ Under Listing Rule 5810(c)(3)(G), Nasdaq Staff could extend
this ten-day period to a maximum of 20 days.
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This process is designed to allow adequate time for a company
facing temporary business issues, a temporary decrease in the market
value of its securities, or temporary market conditions to come back
into compliance with a bid price deficiency. Nasdaq has observed
certain situations where, in Nasdaq's view, a company may be facing
more serious issues and a compliance period of up to 360 days \5\
therefore may not be appropriate. Specifically, these situations
involve: (i) Securities with very low security prices (below $0.10);
and (ii) securities where the company has completed one or more reverse
stock splits over the prior two year period that, when considered
cumulatively, result in a ratio of 250 shares or more to one (meaning
that an investor would receive one share for every 250 shares or more
owned at the start of the period), and then fails to satisfy the bid
price requirement.
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\5\ As noted above, under Listing Rule 5810(c)(3)(A) all
companies are eligible for an initial compliance period of 180
calendar days from the notification of non-compliance with the bid
price requirement and a company that lists its security on the
Nasdaq Capital Market, or transfers its listing to that market, may
be eligible for a second 180 calendar day period to regain
compliance, for a total compliance period of up to 360 calendar
days.
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In these situations, Nasdaq has observed that the challenges facing
the company generally are not temporary and may be so severe that the
company is not likely to regain compliance within the prescribed
compliance period. Moreover, the bid price issues can be a leading
indicator of other listing compliance concerns. As a result, these
companies often become subject to delisting for other reasons during
the compliance periods. Finally, these companies frequently need to
raise additional capital to fund their business operations and often do
so by engaging in extremely dilutive transactions. Accordingly, in
order to enhance investor protection, Nasdaq proposes to modify the
listing rules so that these companies are subject to shortened
compliance periods, which could lead to earlier delisting, and enhanced
review procedures.
With respect to securities with very low prices, Nasdaq proposes to
modify the Listing Rules to provide that a company in a bid price
compliance period (i.e., the company's security has already traded
below $1.00 for thirty consecutive days) will immediately receive a
Staff Delisting Determination if the security trades below $0.10 for a
period of ten consecutive trading days, ending any otherwise applicable
compliance period. Such a company could request review of the Delisting
Determination by a Hearings Panel, and the Panel could grant the
company additional time to complete a reverse stock split or otherwise
regain compliance.\6\ Nasdaq believes that placing such companies
immediately under the scrutiny of a Hearings Panel will serve to better
protect investors.
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\6\ Under Listing Rule 5815(c)(1)(A), a Hearings Panel can grant
an exception to the continued listing standards for a period not to
exceed 180 days from the date of the Staff Delisting Determination.
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Nasdaq also proposes to change the Listing Rules to require the
issuance of a Staff Delisting Determination if a company falls out of
compliance with the $1.00 minimum bid price (i.e., it has had a closing
bid price below $1.00 for 30 consecutive business days) after
completing one or more reverse stock splits resulting in a cumulative
ratio 250 shares or more to one over the two year period before such
non-compliance.\7\ In these cases, Nasdaq believes it is inappropriate
for a security to remain listed while relying on very large reverse
stock splits to maintain compliance with the $1.00 minimum bid price.
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\7\ For example, a company could effect a reverse stock split in
a ratio of 25 shares to one followed within the two-year period by a
second reverse stock split in a ratio of 10 shares to one, resulting
in a cumulative ratio of 250 shares to one. Alternatively, a company
could effect three reverse stock splits in the two year period, with
ratios of 10 shares to one, five shares to one, and five shares to
one, respectively, resulting in a cumulative ratio of 250 shares to
one.
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A company that is not eligible for a compliance period under these
proposed rule changes would receive a Staff Delisting Determination,
which it
[[Page 3738]]
could appeal to a Hearings Panel, and the Panel could grant the company
an exception to remain listed if it believes the company will be able
to achieve and maintain compliance with the bid price requirement.
However, Nasdaq also proposes to modify the Listing Rules so that
following such a Panel exception the company would be subject to the
procedures applicable to a company with recurring deficiencies as
described in Rule 5815(d)(4)(B). As a result, if within one year of the
date the company regains compliance the company again fails to maintain
compliance with the price requirement, the company would not be
eligible for a compliance period and instead the Listing Qualifications
Department will issue a Staff Delisting Determination, which can be
appealed to the Hearings Panel.
Nasdaq believes that it would be unfair to modify the rules
impacting companies with securities that are already in a compliance
period, and therefore proposes to implement these new rules for
companies that first receive notification of non-compliance with the
bid price requirement after the date of the Commission's approval of
these changes. A company that has already received notification of non-
compliance would be permitted to regain compliance under the existing
rule, in the manner that the notification of non-compliance would have
described.\8\
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\8\ Nasdaq notes that under Listing Rule 5810(c)(3)(A)(ii), a
company is not eligible for the second compliance period ``if it
does not appear to Nasdaq that it is possible for the Company to
cure the deficiency.'' As is currently the case, Nasdaq may rely
upon this language to deny the second compliance period to a company
with a very low stock price or that has engaged in significant prior
reverse stock splits, even though the company is not yet subject to
the new rule.
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2. Statutory Basis
The Exchange believes that its proposal is consistent with Section
6(b) of the Act,\9\ in general, and furthers the objectives of Section
6(b)(5) and 6(b)(7) of the Act,\10\ in particular. The proposed rule
change furthers the objectives of Section 6(b)(5) in that it is
designed to promote just and equitable principles of trade, to remove
impediments to and perfect the mechanism of a free and open market and
a national market system, and, in general to protect investors and the
public interest, by enhancing Nasdaq's listing requirements and
limiting the time that a security can remain listed with a price below
$0.10 or following one or more reverse stock splits with a cumulative
ratio of 250 to one or more over the prior two year period. In that
regard, Nasdaq has observed that the 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. Moreover, the price concerns with these companies can be a
leading indicator of other listing compliance concerns, and these
companies often become subject to delisting for other reasons during
the compliance periods. Finally, these companies often have a need to
raise additional capital to fund their business operations at extremely
low prices in dilutive transactions. While listed, these securities are
exempt from the ``Penny Stock Rules,'' \11\ which provide enhanced
investor protections to prevent fraud and safeguard against potential
market manipulation. In particular, the Penny Stock Rules generally
require that broker-dealers provide a disclosure document to their
customers describing the risk of investing in Penny Stocks and approve
customer accounts for transactions in Penny Stocks. Nasdaq believes
that an exemption from these Penny Stock requirements may not be
appropriate for abnormally low priced stocks and stocks that are
trading below $1 after completing one or more reverse stock splits with
a cumulative ratio of 250 to one or more over the prior two year period
because these securities may have similar characteristics to Penny
Stocks. Nasdaq therefore believes it is appropriate to subject these
securities to heightened scrutiny given the availability of the
exemption to securities listed on Nasdaq.
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\9\ 15 U.S.C. 78f(b).
\10\ 15 U.S.C. 78f(b)(5) and (7).
\11\ See Exchange Act Rules 3a51-1, 17 CFR 240.3a51-1, and 15g-1
to 15g-100, 17 CFR 240.5g-1 et seq.
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The proposed rule change furthers the objectives of Section 6(b)(7)
of the Act in that it continues to provide a fair procedure for
companies subject to these enhanced listing requirements. These
companies can seek review of a Staff Delisting Determination from a
Hearings Panel, which can afford the company additional time to regain
compliance, and can appeal the Hearings Panel decision to the Nasdaq
Listing and Hearing Review Council.\12\ As a result, Nasdaq believes
that the proposed rule appropriately balances the need for appropriate
listing standards with the statutory requirement to protect investors
and the public interest.
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\12\ See Listing Rules 5815 and 5820, respectively.
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Finally, Nasdaq believes that the ten consecutive trading day
period that a company must trade below $0.10 before the proposed rule
would require issuance of a Staff Delisting Determination appropriately
balances Nasdaq's obligation and desire to protect investors under
Section 6(b)(5) with the need for a fair and equitable procedure under
Section 6(b)(7). The ten consecutive trading day period is long enough
that a temporary decline below $0.10 will not trigger the proposed
heightened requirements. Moreover, the ten-day period is designed to
parallel the timeframe, already a part of Nasdaq's rules, that a
company must trade above $1.00 to demonstrate compliance with the bid
price requirement.
B. Self-Regulatory Organization's Statement on Burden on Competition
The Exchange does not believe that the proposed rule change will
impose any burden on competition not necessary or appropriate in
furtherance of the purposes of the Act. While Nasdaq does not believe
there will be any impact on competition from the proposed change, any
impact on competition that does arise will be necessary to better
protect investors, in furtherance of a central purpose of the Act.
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others
No written comments were either solicited or received.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
Within 45 days of the date of publication of this notice in the
Federal Register or within such longer period up to 90 days (i) as the
Commission may designate if it finds such longer period to be
appropriate and publishes its reasons for so finding or (ii) as to
which the self-regulatory organization consents, the Commission will:
(A) By order approve or disapprove the proposed rule change, or
(B) institute proceedings to determine whether the proposed rule
change should be disapproved.
IV. Solicitation of Comments
Interested persons are invited to submit written data, views, and
arguments concerning the foregoing, including whether the proposed rule
change is consistent with the Act. Comments may be submitted by any of
the following methods:
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Electronic Comments
Use the Commission's internet comment form (http://www.sec.gov/rules/sro.shtml); or
Send an email to [email protected]. Please include
File Number SR-NASDAQ-2020-001 on the subject line.
Paper Comments
Send paper comments in triplicate to Secretary, Securities
and Exchange Commission, 100 F Street NE, Washington, DC 20549-1090.
All submissions should refer to File Number SR-NASDAQ-2020-001. This
file number should be included on the subject line if email is used. To
help the Commission process and review your comments more efficiently,
please use only one method. The Commission will post all comments on
the Commission's internet website (http://www.sec.gov/rules/sro.shtml).
Copies of the submission, all subsequent amendments, all written
statements with respect to the proposed rule change that are filed with
the Commission, and all written communications relating to the proposed
rule change between the Commission and any person, other than those
that may be withheld from the public in accordance with the provisions
of 5 U.S.C. 552, will be available for website viewing and printing in
the Commission's Public Reference Room, 100 F Street NE, Washington, DC
20549, on official business days between the hours of 10:00 a.m. and
3:00 p.m. Copies of the filing also will be available for inspection
and copying at the principal office of the Exchange. All comments
received will be posted without change. Persons submitting comments are
cautioned that we do not redact or edit personal identifying
information from comment submissions. You should submit only
information that you wish to make available publicly. All submissions
should refer to File Number SR-NASDAQ-2020-001, and should be submitted
on or before February 12, 2020.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\13\
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\13\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020-00917 Filed 1-21-20; 8:45 am]
BILLING CODE 8011-01-P