[Federal Register Volume 89, Number 198 (Friday, October 11, 2024)]
[Notices]
[Pages 82652-82654]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2024-23535]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-101271; File No. SR-NASDAQ-2024-029]
Self-Regulatory Organizations; The Nasdaq Stock Market LLC; Order
Granting Approval of a Proposed Rule Change, as Modified by Amendment
No. 2, To Modify the Application of Bid Price Compliance Periods
October 7, 2024.
I. Introduction
On June 21, 2024, The Nasdaq Stock Market LLC (``Exchange'') filed
with the Securities and Exchange Commission (``Commission''), pursuant
to Section 19(b)(1) of the Securities Exchange Act of 1934 (``Exchange
Act'') \1\ and Rule 19b-4 thereunder,\2\ a proposed rule change to
modify the application of the bid price compliance periods where a
listed company takes an action to achieve compliance with the bid price
requirement and that action causes non-compliance with another listing
requirement. The proposed rule change was published for comment in the
Federal Register on July 9, 2024.\3\ On August 21, 2024, pursuant to
Section 19(b)(2) of the Exchange Act,\4\ the Commission designated a
longer period within which to approve the proposed rule change,
disapprove the proposed rule change, or institute proceedings to
determine whether to disapprove the proposed rule change.\5\ On October
3, 2024, the Exchange filed Amendment No. 2 \6\ to the proposed rule
change.\7\ This order approves the proposed rule change, as modified by
Amendment No. 2.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ See Securities Exchange Act Release No. 100461 (July 3,
2024), 89 FR 56457 (``Notice''). Comments received on the Notice are
available on the Commission's website at: https://www.sec.gov/comments/sr-nasdaq-2024-029/srnasdaq2024029.htm.
\4\ 15 U.S.C. 78s(b)(2).
\5\ See Securities Exchange Act Release No. 100791, 89 FR 68671
(Aug. 27, 2024) (designating October 7, 2024 as the date by which
the Commission shall either approve, disapprove, or institute
proceedings to determine whether to disapprove the proposed rule
change).
\6\ Amendment No. 1 to the proposed rule change was submitted on
September 27, 2024, and it was subsequently withdrawn on October 3,
2024.
\7\ In Amendment No. 2, the Exchange (1) clarified the
application of Rule 5810(c)(3)(H) in extending the ten consecutive
day compliance period for regaining compliance with the minimum bid
price requirement, (2) clarified that the failure to satisfy the
requirements during the compliance period(s) applicable to the
initial bid price deficiency will result in the issuance of a Staff
Delisting Determination Letter, and (3) made other technical and
non-substantive changes for readability. Because Amendment No. 2
does not materially alter the substance of the proposed rule change
and makes clarifying modifications, Amendment No. 2 is not subject
to notice and comment. The full text of Amendment No. 2 can be found
on the Commission's website at: https://www.sec.gov/comments/sr-nasdaq-2024-029/srnasdaq2024029-526675-1511382.pdf.
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II. Description of the Proposed Rule Change, as Modified by Amendment
No. 2
The Exchange is proposing to amend Rule 5810(c)(3)(A) to modify the
application of the bid price compliance periods where a listed company
takes an action to achieve compliance with the $1.00 minimum bid price
continued listing requirement \8\ (the ``Bid Price Requirement'') and
that action causes non-compliance with another listing requirement.\9\
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\8\ The Exchange states that each tier of Nasdaq listed
securities includes a requirement that specified securities maintain
a $1.00 minimum bid price. See Notice, supra note 3, at 56457, n.3
(citing to Rule 5550(a)(2) (Primary Equity Security listed on the
Nasdaq Capital Market) and Rule 5450(a)(1) (Primary Equity Security
listed on the Nasdaq Global or Global Select Markets).
\9\ Rule 5810(c)(3)(A) states: ``A failure to meet the continued
listing requirement for minimum bid price shall be determined to
exist only if the deficiency continues for a period of 30
consecutive business days. Upon such failure, the Company shall be
notified promptly and shall have a period of 180 calendar days from
such notification to achieve compliance. Compliance can be achieved
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).'' Rules
5810(c)(3)(A)(i) and (ii) also provide an additional 180 day
compliance period for companies listed on Capital Markets, or Global
Select or Global Market that transfer to Capital Markets, that are
not in compliance with the bid price requirement prior to expiration
of the first 180 day compliance period if certain requirements are
met.
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The Exchange states that listed companies may effect a reverse
stock split \10\ to regain compliance with the Bid Price Requirement.
According to the Exchange, the reduction in the number of shares caused
by the reverse stock split results in a proportional reduction in the
number of Publicly Held Shares \11\ and depending on how fractional
shares are treated, may also reduce the number of holders of the
company's securities.\12\ As a result, the Exchange states that a
reverse stock split used to regain compliance with the Bid Price
Requirement may result in the company's non-compliance with other
Exchange listing rules that require a certain number of holders and
Publicly Held Shares.\13\ Upon a company's failure to satisfy the
applicable holder or number of Publicly Held Shares requirement, Rule
5810(c)(2)(A) generally allows the company a 45-calendar day period to
provide a plan to regain compliance to Nasdaq staff and Rule
5810(c)(2)(B) generally provides that Nasdaq staff may grant an
extension of up to 180 calendar days for the company to achieve
compliance.\14\
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\10\ The Exchange states that reverse stock splits have the
effect of increasing a company's stock price by consolidating the
outstanding shares. See Notice, supra note 3, at 56457.
\11\ 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.'' See also 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).
\12\ See Notice, supra note 3, at 56457.
\13\ See id.
\14\ See id. at 56457, n.5.
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Currently, a company that regains compliance with the Bid Price
Requirement by taking a corporate action (e.g., a reverse stock split)
that results in the company's security falling below the numeric
threshold for another Exchange listing requirement could be
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granted additional time of up to 180 calendar days from initial
notification by Nasdaq staff to regain compliance with the newly
created deficiency.\15\ Nasdaq believes that it is not appropriate for
a company to receive additional time to cure non-compliance with such
newly violated listing standard.\16\ Accordingly, Nasdaq states that it
is 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.\17\
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\15\ Nasdaq provided the following example of how its current
rules work for a Nasdaq Capital Market listed company seeking to
regain compliance with a bid price deficiency. Company A with
1,600,000 Publicly Held Shares attempts to regain compliance with
the Bid Price Requirement by effecting a reverse stock split at a
ratio of 1-for-4, which would initially increase the Company A's
stock price above $1.00. See id. at 56457. Assuming Company A
thereafter maintains a closing bid price above $1.00 for ten
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 consecutive business day. See id. 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. See id. 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). See id.
\16\ See id.
\17\ See id.
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Under the proposed rule, such company will not be considered to
have regained compliance with the Bid Price Requirement if the company
takes an action to achieve compliance and that action results in the
company's security falling below the numeric threshold for another
Exchange listing requirement without regard to any compliance periods
otherwise available for that other listing requirement.\18\ In such
event, the company will continue to be considered non-compliant until
both: (i) the other deficiency is cured and (ii) thereafter the company
meets the bid price standard for a minimum of ten consecutive business
days, unless Nasdaq staff exercises its discretion to extend this ten
day period as discussed in Rule 5810(c)(3)(H). If the company does not
demonstrate compliance with (i) and (ii) during the compliance
period(s) applicable to the initial bid price deficiency, Nasdaq will
issue a Staff Delisting Determination Letter.\19\
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\18\ See proposed Rule 5810(c)(3)(A).
\19\ See proposed Rule 5810(c)(3)(A). The Exchange states that
Company A described in footnote 15 above ``would continue to be
considered non-compliant with the Bid Price Requirement until both
the new 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.'' See Notice, supra note 3, at 56457-58.
The Exchanges states that all of this must be accomplished during
the compliance period applicable to the initial Bid Price
Requirement deficiency. See id. at 56458. Accordingly, 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(c)(3)(A), unless extended pursuant to Rule 5810(c)(3)(H). See
id.
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III. Discussion and Commission Findings
After careful review, the Commission finds that the proposed rule
change, as modified by Amendment No. 2, is consistent with the
requirements of the Exchange Act and the rules and regulations
thereunder applicable to a national securities exchange.\20\ In
particular, the Commission finds that the proposed rule change, as
modified by Amendment No. 2, is consistent with Section 6(b)(5) of the
Exchange Act,\21\ which requires, among other things, that the rules of
an exchange be designed to prevent fraudulent and manipulative acts and
practices, 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, and not be designed to permit unfair discrimination
between customers, issuers, brokers, or dealers.
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\20\ In approving this proposed rule change, the Commission has
considered the proposed rule's impact on efficiency, competition,
and capital formation. See 15 U.S.C. 78c(f).
\21\ 15 U.S.C. 78f(b)(5).
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The development and enforcement of meaningful listing standards
\22\ for an exchange is of critical importance to financial markets and
the investing public. Among other things, such listing standards help
ensure that exchange-listed companies will have sufficient public
float, investor base, and trading interest to provide the depth and
liquidity to promote fair and orderly markets. Meaningful listing
standards also are important given investor expectations regarding the
nature of securities that have achieved an exchange listing, and the
role of an exchange in overseeing its market and assuring compliance
with its listing standards.\23\
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\22\ The Commission notes that this reference to ``listing
standards'' is referring to both initial and continued listing
standards.
\23\ See, e.g., Securities Exchange Act Release Nos. 88716 (Apr.
21, 2020), 85 FR 23393 (Apr. 27, 2020) (SR-NASDAQ-2020-001) (Order
Approving a Proposed Rule Change To Modify the Delisting Process for
Securities With a Bid Price at or 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);
88389 (Mar. 16, 2020), 85 FR 16163 (Mar. 20, 2020) (SR-NASDAQ-2019-
089) (Notice of Filing of Amendment No. 1 and Order Granting
Accelerated Approval of a Proposed Rule Change, as Modified by
Amendment No. 1, To Amend Rule 5815 To Preclude Stay During Hearing
Panel Review of Staff Delisting Determinations in Certain
Circumstances). See also Securities Exchange Act Release No. 81856
(Oct. 11, 2017), 82 FR 48296, 48298 (Oct. 17, 2017) (SR-NYSE-2017-
31) (Notice of Filing of Amendment No. 1 and Order Granting
Accelerated Approval of a Proposed Rule Change, as Modified by
Amendment No. 1, To Amend the Listed Company Manual To Adopt Initial
and Continued Listing Standards for Subscription Receipts) (stating
that ``[a]dequate standards are especially important given the
expectations of investors regarding exchange trading and the
imprimatur of listing on a particular market'' and that ``[o]nce a
security has been approved for initial listing, maintenance criteria
allow an exchange to monitor the status and trading characteristics
of that issue . . . so that fair and orderly markets can be
maintained.'').
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As discussed above, currently, a company that regains compliance
with the Bid Price Requirement by taking a corporate action (e.g., a
reverse stock split) that results in the company's security falling
below the numeric threshold for another Exchange listing requirement
could be granted additional time (up to 180 calendar days) to regain
compliance with the newly created deficiency.\24\ The Exchange believes
that this scenario, as described in the examples provided in the
Notice,\25\ creates confusion for investors about a company's ability
to maintain compliance with its listing rules thereby negatively
impacting investor confidence in the market.\26\ The Exchange believes
that its proposal to address these concerns will protect investors and
provide additional clarity to Exchange listed companies and market
participants by preventing a company from receiving a compliance
determination (for its initial bid price deficiency) and communicating
to investors that it has regained compliance until it has cured both
the new deficiency caused by its corporate action and thereafter its
bid price deficiency during the compliance period applicable to the
initial Bid Price Requirement deficiency.\27\
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\24\ See supra note 15 and accompanying text.
\25\ See supra notes 15 and 20.
\26\ See Notice, supra note 3, at 56457.
\27\ See id. at 56458.
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The Exchange's proposal is reasonably designed to enhance its
continued listing standards, particularly those involving issuers with
securities that trade near or below the Bid Price Requirement that may
be motivated to utilize reverse stock splits to inappropriately delay
delisting, thereby protecting investors and the public
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interest. In particular, the proposal reasonably addresses a gap in the
Exchange's current continued listing standards that potentially allows
an issuer to delay delisting, through corporate action taken to cure a
Bid Price Requirement deficiency that then results in a deficiency in
another numeric continued listing requirement, and thereby remain
listed on the Exchange for an extended period of time despite not
maintaining the Exchange standards required for continued listing.\28\
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\28\ See supra note 20.
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Importantly, the Exchange's proposal also prevents a company from
requesting or receiving a compliance determination for its initial Bid
Price Requirement deficiency and communicating to investors that it has
regained compliance with the Exchange's listing requirements until it
has also cured any non-compliance with other numeric listing
requirements caused by its actions to cure the initial Bid Price
Requirement deficiency.\29\ If the company does not meet both these
requirements, in that order, during the compliance period applicable to
the initial bid price deficiency, the Exchange will issue a Staff
Delisting Determination Letter. Furthermore, while the Commission
recognizes that the Exchange delisting process is in part designed to
allow companies experiencing temporary financial and/or business issues
to regain compliance with continued listing standards,\30\ the proposal
reasonably balances the intent of the delisting process with the need
to prevent companies from taking advantage of the delisting process
through multiple extensions to remain listed while failing to comply
with the Exchange's continued listing standards, contrary to the goal
of protecting investors and the public interest.
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\29\ Under the proposal, if the reverse split causes a new
deficiency, the company will not be deemed compliant with the Bid
Price Requirement even if it has a bid price above $1.00 for ten
consecutive days after the reverse split until the new deficiency is
first cured, and thereafter the bid price requirement is met for ten
consecutive business days or such additional time period pursuant to
Rule 5810(c)(3)(H).
\30\ The Exchange has stated, for example, that the bid price
compliance periods are ``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.'' See
Securities Exchange Act Release No. 87982 (Jan. 15, 2020), 85 FR
3736, 3737 (Jan. 22, 2020) (SR-NASDAQ-2020-001) (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).
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Finally, the Commission notes that the comment letters received on
the proposal were generally supportive.\31\
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\31\ See Letter from Joseph Corcoran, Managing Director,
Associate General Counsel, Securities Industry and Financial Markets
Association, dated July 30, 2024; Thomas H. Merritt, Deputy General
Counsel, Virtu Financial, Inc., dated Aug. 5, 2025; Letter from
Daniel Zinn, General Counsel, and Flavia Vehbiu, Deputy General
Counsel, OTC Markets Group Inc., dated Sept. 17, 2024. See also
Joint Letter from Christopher A. Iacovella, President and Chief
Executive Officer, American Securities Association, Stephen Hall,
Legal Director, Better Markets, Tyler Gellasch, President and CEO,
Healthy Markets Association, John Ramsay, Chief Market Policy
Officer, Investors Exchange LLC, Joseph Saluzzi, Partner, Themis
Trading LLC, dated Aug. 23, 2024, at 2, n.4 (stating that recent
Exchange proposals, including SR-NASDAQ-2024-029, to amend listing
rules to address concerns regarding ``listed penny stocks''
``represent steps in the right direction''). The comment letters
received also express support for additional proposals to enhance
exchange listing standards to further address investor protection
concerns, particularly those involving Nasdaq listed companies with
low-priced securities. Nasdaq states that it is considering other
changes to the delisting process applicable to companies that are
non-compliant with the Bid Price Requirement and such changes will
be subject to a separate rule filing. See Notice, supra note 3, at
56458, n.10. See, e.g., Securities Exchange Act Release No. 100767
(Aug. 19, 2024), 89 FR 68228 (Aug. 23, 2024) (SR-NASDAQ-2024-045)
(Notice of Filing of Proposed Rule Change to Modify the Application
of the Minimum Bid Price Compliance Periods and the Delisting
Appeals Process for Bid Price Non-Compliance in Listing Rules 5810
and 5815 Under Certain Circumstances). In approving this proposal,
the Commission is finding the proposal before us is consistent with
the Exchange Act.
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For the reasons discussed above, the Commission finds that this
proposed rule change, as modified by Amendment No. 2, is consistent
with the requirements of the Exchange Act.
IV. Conclusion
It Is Therefore Ordered, pursuant to Section 19(b)(2) of the
Exchange Act,\32\ that the proposed rule change (SR-NASDAQ-2024-029),
as modified by Amendment No. 2, be, and it hereby is, approved.
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\32\ Id.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\33\
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\33\ 17 CFR 200.30-3(a)(12).
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Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2024-23535 Filed 10-10-24; 8:45 am]
BILLING CODE 8011-01-P