[Federal Register Volume 89, Number 131 (Tuesday, July 9, 2024)]
[Notices]
[Pages 56457-56458]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2024-15038]



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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-100461; File No. SR-NASDAQ-2024-029]


Self-Regulatory Organizations; The Nasdaq Stock Market LLC; 
Notice of Filing of Proposed Rule Change To Modify the Application of 
Bid Price Compliance Periods

July 3, 2024.
    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 June 21, 2024, The Nasdaq Stock Market LLC (``Nasdaq'' or 
``Exchange'') filed with the Securities and Exchange Commission 
(``SEC'' or ``Commission'') the proposed rule change as described in 
Items I, II, and III, 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 application of the bid price 
compliance periods where a company takes action that causes non-
compliance with another listing requirement.
    The text of the proposed rule change is available on the Exchange's 
website at https://listingcenter.nasdaq.com/rulebook/nasdaq/rules, 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
    Reverse stock splits have the effect of increasing a company's 
stock price by consolidating the outstanding shares. Companies may 
effect a reverse stock split to regain compliance with the minimum bid 
price required by Exchange listing rules (the ``Bid Price 
Requirement'').\3\ The share reduction caused by the reverse stock 
split results in a proportional reduction in the number of Publicly 
Held Shares \4\ and, depending on how fractional shares are treated, 
may also reduce the number of holders of the company's securities. As 
such, implementation of a reverse stock split could trigger non-
compliance with other listing rules and start a new deficiency 
process.\5\ Nasdaq believes that this scenario creates confusion for 
investors around the Company's ability to maintain compliance with the 
Listing Rules and could negatively impact investor confidence in the 
market. Accordingly, Nasdaq believes that in such cases the company 
should not be afforded additional time to regain compliance with that 
newly created deficiency.
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    \3\ Each tier of Nasdaq includes a requirement that specified 
securities maintain a $1.00 minimum bid price. See, e.g., Rule 
5550(a)(2) (Primary Equity Security listed on the Nasdaq Capital 
Market); Rule 5450(a)(1) (Primary Equity Security listed on the 
Nasdaq Global or Global Select Markets). Upon a company's failure to 
satisfy the applicable Bid Price Requirement, Rule 5810(3)(A) 
provides for an automatic compliance period of 180 calendar days for 
the company to achieve compliance with the Bid Price Requirement. 
Cf. NYSE American Company Guide Section 1003(f)(v), which discusses 
low selling price issues but does not impose a fixed minimum price 
requirement nor a timeline for how long a company could remain below 
$1.00.
    \4\ Rule 5005(a)(35) defines ``Publicly Held Shares'' as: shares 
not held directly or indirectly by an officer, director or any 
person who is the beneficial owner of more than 10 percent of the 
total shares outstanding.
    \5\ See, e.g., Rules 5550(a)(3) and (4) (requiring 300 public 
holders and at least 500,000 Publicly Held Shares for Primary Equity 
Securities listed on the Nasdaq Capital Market) and Rules 
5450(a)(2), 5450(b)(1)(B), 5450(b)(2)(B) and 5450(b)(3)(B) 
(requiring 400 total holders and, depending on other characteristics 
of the company, either 750,000 or 1.1 million Publicly Held Shares 
for Primary Equity Securities listed on the Nasdaq Global Market). 
Upon a company's failure to satisfy the applicable holder or number 
of Publicly Held Shares requirement, Rule 5810(c)(2)(A) allows the 
company a 45-calendar day period to provide a plan to regain 
compliance to Nasdaq Staff and Rule 5810(c)(2)(B) provides that 
Nasdaq staff may grant an extension of up to 180 calendar days for 
the company to achieve compliance.
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    Specifically, Nasdaq is proposing to amend Rule 5810(c)(3)(A) to 
provide that a company will not be considered to have regained 
compliance with its Bid Price Requirement if the company takes an 
action to achieve compliance with that requirement (e.g., a reverse 
stock split), and that action results in the company's security falling 
below the numeric threshold for another listing requirement, without 
regard to any compliance process otherwise available for that listing 
requirement.
    For example, consider a company listed on the Nasdaq Capital Market 
(``Company A'') that has 1,600,000 Publicly Held Shares. In order to 
regain compliance with the Bid Price Requirement under Rule 5550(a)(2), 
Company A effects a reverse stock split at a ratio of 1-for-4. This 
reverse stock split initially increases Company A's stock price above 
$1.00. Assuming Company A thereafter maintains a closing bid price 
above $1.00 for ten (10) consecutive business days, under current Rule 
5810(c)(3)(A), Company A will achieve compliance with the Bid Price 
Requirement at the conclusion of the tenth (10th) consecutive business 
day.\6\ However, in this example, at the same time that the reverse 
stock split increased Company A's stock price, the 1-for-4 reverse 
stock split also reduced the number of Publicly Held Shares from 
1,600,000 to 400,000, causing Company A to no longer satisfy the 
minimum number of Publicly Held Shares required to remain listed on the 
Nasdaq Capital Market.\7\ As a result, under these circumstances, the 
reverse stock split would allow Company A to regain compliance with the 
Bid Price Requirement of Rule 5550(a)(2) while at the same time causing 
non-compliance with the minimum Publicly Held Shares requirement of 
Rule 5550(a)(4). Under Nasdaq's current rules, Nasdaq would notify the 
company about this new deficiency and the company would be afforded 45 
calendar days to submit a plan to regain compliance and could be 
afforded up to 180 calendar days to regain compliance.\8\
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    \6\ See Rule 5810(c)(3)(A) providing that a company achieves 
compliance during any compliance period by meeting the applicable 
standard for a minimum of 10 consecutive business days during the 
applicable compliance period, unless Staff exercises its discretion 
to extend this 10-day period as discussed in Rule 5810(c)(3)(H).
    \7\ The continued listing requirement for publicly held shares 
on the Nasdaq Capital Market is 500,000 Publicly Held Shares. See 
Rule 5550(a)(4).
    \8\ See Rule 5810(c)(2) and IM-5810-2.
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    Nasdaq believes that it is not appropriate for a company to receive 
additional time to cure non-compliance with such newly violated listing 
standard. Nasdaq is therefore proposing this rule change to prevent 
companies from benefiting from additional time for the subsequent 
deficiency that was ultimately caused by the company's non-compliance 
with the Bid Price Requirement.
    Under the proposed amendment, Company A in the example above would 
continue to be considered non-compliant with the Bid Price Requirement 
until both the new

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Publicly Held Shares deficiency is cured and thereafter the company 
maintains a $1.00 bid price for a minimum of ten (10) consecutive 
business days.\9\ All of this must be accomplished during the 
compliance period applicable to the initial Bid Price Requirement 
deficiency. Thus, the proposed rule would not allow Company A to submit 
a plan to regain compliance with the Publicly Held Shares requirement 
and would instead require Company A to regain compliance with both 
rules within the applicable compliance period for the Bid Price 
Requirement pursuant to Rule 5810(3)(A).
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    \9\ Nasdaq Staff could exercise its discretion under Rule 
5810(c)(3)(H) to extend this 10-day period to up to 20 days.
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    Nasdaq believes the proposed amendment will protect investors and 
provide additional clarity to companies and market participants by 
enhancing the quality of a compliance determination following a 
company's deficiency for failure to comply with the Bid Price 
Requirement.\10\
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    \10\ Nasdaq is considering other changes to the delisting 
process applicable to companies that are non-compliant with the Bid 
Price Requirement. Any such changes will be subject to a separate 
rule filing.
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2. Statutory Basis
    The Exchange believes that its proposed change to Rule 
5810(c)(3)(A) is consistent with Section 6(b) of the Act,\11\ in 
general, and furthers the objectives of Section 6(b)(5) of the Act,\12\ 
in particular, in that it is designed to protect investors and the 
public interest. The proposed rule change is designed to enhance 
Nasdaq's listing standards, thereby strengthening the quality of listed 
companies and protecting investors. Specifically, the proposal would 
protect investors by preventing a company from requesting or receiving 
a compliance determination and communicating to investors that it has 
regained compliance with the Listing Rules until it also has cured any 
concerns with numeric listing requirements caused by its actions to 
cure the initial Bid Price Requirement deficiency.
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    \11\ 15 U.S.C. 78f(b).
    \12\ 15 U.S.C. 78f(b)(5).
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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. The Exchange does not expect 
that its proposal will have an adverse impact on competition among 
listed companies because the proposed change will apply equally to all 
similarly situated companies seeking to regain compliance with the Bid 
Price Requirement and will confer no relative advantage or disadvantage 
upon any listed company. Further, the Exchange does not expect that its 
proposal will have an adverse impact on competition with other listed 
venues. The market for listing services is extremely competitive and 
listed companies may freely choose alternative venues for listing. Such 
other venues will remain free to adopt similar rules, if they view them 
as advantageous, or to maintain a rulebook with no minimum price 
requirement to the extent allowed by the Commission.\13\ As such, the 
Exchange does not believe that the proposed rule change will impose an 
unnecessary or inappropriate burden on competition.
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    \13\ See NYSE American Company Guide Section 1003(f)(v), which 
discusses low selling price issues but does not impose a fixed 
minimum price requirement nor a timeline for how long a company 
could remain below $1.00.
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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 (i) as the Commission may 
designate up to 90 days of such date if it finds such longer period to 
be appropriate and publishes its reasons for so finding or (ii) as to 
which the Exchange consents, the Commission shall: (a) by order approve 
or disapprove such 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:

Electronic Comments

     Use the Commission's internet comment form (https://www.sec.gov/rules/sro.shtml); or
     Send an email to [email protected]. Please include 
file number SR-NASDAQ-2024-029 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-2024-029. 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 (https://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 
a.m. and 3 p.m. Copies of the filing also will be available for 
inspection and copying at the principal office of the Exchange. Do not 
include personal identifiable information in submissions; you should 
submit only information that you wish to make available publicly. We 
may redact in part or withhold entirely from publication submitted 
material that is obscene or subject to copyright protection. All 
submissions should refer to file number SR-NASDAQ-2024-029 and should 
be submitted on or before July 30, 2024.
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    \14\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\14\
Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2024-15038 Filed 7-8-24; 8:45 am]
BILLING CODE 8011-01-P