[Federal Register Volume 91, Number 142 (Monday, July 27, 2026)]
[Notices]
[Pages 46995-47011]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2026-15060]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-105971; File No. SR-NASDAQ-2026-004]
Self-Regulatory Organizations; The Nasdaq Stock Market LLC; Order
Granting Approval of a Proposed Rule Change, as Modified by Amendment
No. 1, To Adopt a New Continued Listing Requirement
July 22, 2026.
I. Introduction
On January 13, 2026, the Nasdaq Stock Market LLC (``Exchange'' or
``Nasdaq'') filed with the Securities and Exchange Commission
(``Commission''), pursuant to Section 19(b)(1) of the Securities
Exchange Act of 1934 (``Act'') \1\ and Rule 19b-4 thereunder,\2\ a
proposed rule change to adopt a new Market Value of Listed Securities
continued listing requirement of at least $5 million. The proposed rule
change was published for comment in the Federal Register on January 29,
2026.\3\ On March 11, 2026, the Commission designated a longer period
within which to take action on the proposed rule change.\4\ On April
28, 2026, the Commission instituted proceedings under Section
19(b)(2)(B) of the Act \5\ to determine whether to approve or
disapprove the proposed rule change.\6\
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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. 104688 (Jan. 26,
2026), 91 FR 3935 (``Initial Proposal''). Comments received on the
proposed rule change are available at: https://www.sec.gov/rules-regulations/public-comments/sr-nasdaq-2026-004.
\4\ See Securities Exchange Act Release No. 104968, 91 FR 12631
(Mar. 16, 2026). The Commission designated April 29, 2026, as the
date by which the Commission shall approve, disapprove, or institute
proceedings to determine whether to disapprove the proposed rule
change. See id.
\5\ 15 U.S.C. 78s(b)(2)(B).
\6\ See Securities Exchange Act Release No. 105333, 91 FR 23495
(May 1, 2026).
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On June 18, 2026, the Exchange filed Amendment No. 1 to the
proposed rule change, which replaced and superseded
[[Page 46996]]
the original filing in its entirety.\7\ Amendment No. 1 was published
for comment in the Federal Register on June 25, 2026.\8\ This order
approves the proposed rule change, as modified by Amendment No. 1.
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\7\ In Amendment No. 1, the Exchange: (1) modified the scope of
discretion of the Hearings Panel (defined herein) when reviewing a
deficiency related to failure to comply with the MVLS Requirement
(defined herein) to provide that the Hearings Panel may grant an
exception for a period not to exceed 180 days from the Staff
Delisting Determination for the company to demonstrate that it meets
all requirements for initial listing; (2) provided responses to
comment letters; and (3) made other technical and non-substantive
changes to the proposal.
\8\ See Securities Exchange Act Release No. 105747 (June 22,
2026), 91 FR 38460 (``Amendment No. 1'').
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II. Description of the Proposed Rule Change, as Modified by Amendment
No. 1 9
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\9\ All capitalized terms not otherwise defined in this order
shall have the meanings set forth in the Nasdaq Listing Rules.
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Nasdaq Rules require companies listed on the Nasdaq Global Select
Market (``NGS''), Nasdaq Global Market (``NGM'') and Nasdaq Capital
Market (``NCM'') to maintain certain minimum continued listing
requirements.\10\ Subject to certain conditions, a company that fails
to meet continued listing requirements generally may submit a
compliance plan or receive an automatic cure or compliance period.\11\
The Nasdaq Rules also set forth specific circumstances in which a
company's securities will be immediately subject to suspension and
delisting.\12\ A company that receives a Staff Delisting Determination
may appeal this decision to a Nasdaq Listing Qualifications Hearings
Panel (``Hearings Panel'').\13\ When the Hearings Panel review is of a
deficiency related to continued listing requirements, generally the
Hearings Panel may, where it deems appropriate, take certain actions,
including, but not limited to, granting an exception to the continued
listing requirements for a period not to exceed 180 days from the date
of the Staff Delisting Determination to regain compliance, and finding
the company has regained compliance with all applicable listing
requirements.\14\
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\10\ See Nasdaq Rules 5450(a) (Continued Listing Requirements
for Primary Equity Securities on NGM) and 5550(a) (Continued Listing
Requirements for Primary Equity Securities on NCM). After initial
inclusion on the NGS, a Company will remain listed on the NGS
provided it continues to meet the applicable requirements of the
Listing Rules, including the continued listing requirements
contained in the Rule 5400 Series, the requirements of the Rule 5100
Series, and the qualitative requirements of the Rule 5200 and 5600
Series. See Nasdaq Rule 5305(e). Accordingly, the continued listing
requirements applicable to the NGM also apply to continued listing
on the NGS.
\11\ See Nasdaq Rule 5810 (Notification of Deficiency by the
Listing Qualifications Department).
\12\ See Nasdaq Rule 5810(c)(1) (Types of Deficiencies and
Notifications).
\13\ See Nasdaq Rule 5815 (Review of Staff Determinations by
Hearings Panel). A timely request for a hearing ordinarily stays the
suspension of the company's security from trading pending the
issuance of a written Hearings Panel decision. See Nasdaq Rule
5815(a)(1)(B).
\14\ See Nasdaq Rule 5815(c)(1)(A), (E). A company may appeal a
Hearings Panel decision to the Nasdaq Listing and Hearing Review
Council (``Listing Council''). See Nasdaq Rule 5820.
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The Exchange states that the compliance periods provided to a
company that has failed to maintain compliance with continued listing
requirements are designed to allow time for a company facing temporary
business issues, a temporary decrease in the value of its securities,
or temporary market conditions to take action to come back into
compliance.\15\ However, the Exchange states that it has observed that
some companies, typically those facing conditions related to financial
distress or prolonged operational downturn, are unable to regain
compliance with the continued listing requirements for the long-term,
and as a result the market may assign low market values to such
companies.\16\ The Exchange states that it believes when the market
identifies significant problems in a company by assigning a very low
market value, the company is no longer appropriate for continued
listing and trading on Nasdaq because the challenges facing such a
company, generally, are not temporary and may be so severe that the
company is unlikely to regain compliance within the compliance period
or maintain compliance thereafter.\17\
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\15\ See Amendment No. 1, supra note 8, at 38461.
\16\ See id.
\17\ See id. The Exchange also states that it is more difficult
for market makers to make markets in these securities and for there
to be a fair and orderly market. See id.
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Accordingly, the Exchange proposes to adopt Nasdaq Rules 5450(a)(3)
and 5550(a)(6) to require that companies listed on the NGM (or NGS) and
NCM, respectively, maintain a minimum Market Value of Listed Securities
(``MVLS'') \18\ of at least $5 million.\19\ The Exchange also proposes
to modify Nasdaq Rule 5810(c)(1) to add an additional type of
deficiency that would result in an immediate delisting and suspension
from trading on Nasdaq of a company's securities. Specifically,
proposed Nasdaq Rule 5810(c)(1) would provide that a Staff Delisting
Determination will inform the company that its securities are
immediately subject to suspension and delisting when the company fails
to comply with the continued listing requirement for MVLS of at least
$5 million under proposed Nasdaq Rules 5450(a)(3) or 5550(a)(6) for a
period of 30 consecutive business days (``MVLS Requirement''). In
addition, the Exchange proposes to amend Nasdaq Rule 5810(c)(3)(C) to
provide that a company would not be entitled to any cure or compliance
period if the company failed to comply with the MVLS Requirement and
would immediately receive a Staff Delisting Determination.\20\
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\18\ Nasdaq Rule 5005(a)(23) defines ``Market Value'' as the
consolidated closing bid price multiplied by the measure to be
valued. Nasdaq Rule 5005(a)(22) defines ``Listed Securities'' as
securities listed on Nasdaq or another national securities exchange.
\19\ See proposed Nasdaq Rules 5450(a)(3) and 5550(a)(6).
\20\ The Exchange also proposes to make conforming changes to
Nasdaq Rule 5810(c)(3)(C) regarding failure to meet continued
listing requirements related to MVLS under Nasdaq Rules
5450(b)(2)(A) and 5550(b)(2).
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The Exchange also proposes to add to the list of circumstances in
which a request for Hearings Panel review will not stay the suspension
of a company's securities from trading. Specifically, the Exchange
proposes to amend Nasdaq Rule 5815(a)(1)(B) to provide that a timely
request for a hearing will not stay the suspension of the securities
from trading pending the issuance of a written Hearings Panel decision
where the company received a Staff Delisting Determination due to a
failure to comply with the MVLS Requirement.\21\ The Exchange states
that, given the difficulties with maintaining fair and orderly markets
in such low value companies, it believes it is not appropriate for
these companies to continue trading on Nasdaq during the pendency of a
Hearings Panel review for deficiencies under proposed Nasdaq Rules
5450(a)(3) or 5550(a)(6).\22\
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\21\ See proposed Nasdaq Rule 5815(a)(1)(B)(ii)f. The Exchange
states that when a company has its securities suspended during a
Hearings Panel's review, its securities would generally trade in the
over-the-counter (``OTC'') market pending the issuance of a written
Hearings Panel decision. See Amendment No. 1, supra note 8, at
38462.
\22\ See id. at 38461-2.
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Finally, the Exchange proposes to adopt Nasdaq Rule 5815(c)(1)(I)
to provide that in the case of a company that received a Staff
Delisting Determination due to a failure to comply with the MVLS
Requirement, the Hearings Panel may reverse a delisting decision where
the Hearings Panel determines that the Staff Delisting Determination
was in error, or grant an exception for a period not to exceed 180 days
from the Staff Delisting Determination for the company to demonstrate
that it meets all requirements for initial listing.\23\ Nasdaq states
that it believes that the proposed
[[Page 46997]]
change balances the Exchange's obligation to protect investors while
allowing a company whose operational and financial difficulties are
indeed temporary to demonstrate to an independent Hearings Panel that
continued listing is appropriate.\24\
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\23\ See id. at 38462.
\24\ 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. 1, is consistent with the
requirements of the Act and the rules and regulations thereunder
applicable to a national securities exchange.\25\ In particular, the
Commission finds that the proposed rule change, as modified by
Amendment No. 1, is consistent with Section 6(b)(5) of the Act,\26\
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 are not designed to permit unfair discrimination between
customers, issuers, brokers, or dealers. The Commission also finds that
the proposed rule change, as modified by Amendment No. 1, is consistent
with Section 6(b)(7) of the Act,\27\ which requires, among other
things, that the rules of an exchange provide fair procedure for the
prohibition or limitation by the exchange of any person with respect to
access to services offered by the exchange. In addition, the Commission
finds that the proposed rule change, as modified by Amendment No. 1, is
consistent with Section 6(b)(8) of the Act,\28\ which requires that the
rules of an exchange do not impose any burden on competition not
necessary or appropriate in furtherance of the purposes of the Act.
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\25\ 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).
\26\ 15 U.S.C. 78f(b)(5).
\27\ 15 U.S.C. 78f(b)(7).
\28\ 15 U.S.C. 78f(b)(8).
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The Commission has consistently recognized that the development and
enforcement of meaningful listing standards \29\ by an exchange is of
critical importance to financial markets and the investing public.\30\
Among other things, the Commission has stated that listing standards
provide the means for an exchange to screen issuers that seek to become
listed, and to provide listed status only to bona fide companies that
have or will have sufficient public float, investor base, and trading
interest to provide the depth and liquidity to promote fair and orderly
markets.\31\ 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.\32\
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\29\ This reference to ``listing standards'' refers to both
initial and continued listing standards.
\30\ See, e.g., Securities Exchange Act Release No. 57785 (May
6, 2008), 73 FR 27597 (May 13, 2008) (SR-NYSE-2008-17).
\31\ See, e.g., Securities Exchange Act Release Nos. 81856 (Oct.
11, 2017), 82 FR 48296, 48298 (Oct. 17, 2017) (SR-NYSE-2017-31);
81079 (July 5, 2017), 82 FR 32022, 32023 (July 11, 2017) (SR-NYSE-
2017-11); 65708 (Nov. 8, 2011), 76 FR 70799, 70802 (Nov. 15, 2011)
(SR-NASDAQ-2011-073); 63607 (Dec. 23, 2010); 75 FR 82420, 82422
(Dec. 30, 2010) (SR-NASDAQ-2010-137); and 57785 (May 6, 2008), 73 FR
27597, 27599 (May 13, 2008) (SR-NYSE-2008-17). The Commission has
stated that adequate listing standards, by promoting fair and
orderly markets, are consistent with Section 6(b)(5) of the Act, in
that they are, among other things, designed to prevent fraudulent
and manipulative acts and practices, promote just and equitable
principles of trade, and protect investors and the public interest.
See, e.g., Securities Exchange Act Release Nos. 82627 (Feb. 2,
2018), 83 FR 5650, 5633, n.53 (Feb. 8, 2018) (SR-NYSE-2017-30);
87648 (Dec. 3, 2019), 84 FR 67308, 67314, n.42 (Dec. 9, 2019) (SR-
NASDAQ-2019-059); and 88716 (Apr. 21, 2020), 85 FR 23393, 23395,
n.22 (Apr. 27, 2020) (SR-NASDAQ-2020-001).
\32\ See, e.g., Securities Exchange Act Release Nos. 88716 (Apr.
21, 2020), 85 FR 23393 (Apr. 27, 2020) (SR-NASDAQ-2020-001); 88389
(Mar. 16, 2020), 85 FR 16163 (Mar. 20, 2020) (SR-NASDAQ-2019-089).
See also Securities Exchange Act Release No. 81856 (Oct. 11, 2017),
82 FR 48296, 48298 (Oct. 17, 2017) (SR-NYSE-2017-31) (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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A. The MVLS Requirement
The Exchange proposes to adopt Nasdaq Rules 5450(a)(3) and
5550(a)(6) to require that companies listed on the NGS, NGM, and NCM
must maintain a minimum MVLS of at least $5 million. The Exchange also
proposes to amend Nasdaq Rule 5810(c)(1) to provide that companies that
fail to maintain a minimum MVLS of at least $5 million for 30
consecutive business days (i.e., the MVLS Requirement) will be
immediately subject to suspension and delisting. Accordingly, such
companies will not be eligible to receive a cure or compliance period
before receiving a Staff Delisting Determination.
The Exchange states that it has observed that the challenges facing
companies that fail to maintain a minimum MVLS of at least $5 million
generally are not temporary and may be so severe that the company is
not likely to regain and maintain compliance with continued listing
requirements.\33\ According to the Exchange, the securities of
companies with such a low MVLS have a greater chance of being
manipulated or experiencing trading volatility because less capital may
be required to undertake manipulative trading activity.\34\ The
Exchange further states that it is more difficult to maintain fair and
orderly markets in these securities.\35\
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\33\ See Amendment No. 1, supra note 8, at 38461. The Exchange
also states that having an MVLS of less than $5 million can be a
leading indicator of other listing compliance concerns and these
companies often become subject to delisting for other reasons. See
id.
\34\ See id. at 38464.
\35\ See id.
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Several commenters expressed support for Nasdaq's proposal.\36\
Many of these commenters agreed with Nasdaq that low-priced securities
are more likely to be the subject of fraud and manipulation,\37\ and
some of these commenters also stated that such fraud and manipulation
have become more pronounced in recent years due to the increase in low-
priced securities.\38\ One commenter stated ``[l]ow MVLS securities are
especially vulnerable because their limited liquidity and
[[Page 46998]]
scrutiny make them easier to manipulate, directly underscoring the need
for Nasdaq's proposed bright-line continued listing standard to protect
investors and maintain fair and orderly markets.'' \39\ Another
commenter stated that stocks with persistently low market values ``are
subject to structural fragilities like thin trading, higher spreads,
and lack of sustainable investor interest, as well as being susceptible
to promotion driven spikes by insiders.'' \40\ The same commenter
stated that ``[m]arket participants have witnessed rampant use by bad
actors in low-priced stocks, including manipulative trading following
fraudulent account takeovers,'' and estimated that ``retail investors
suffered around $15 billion in ramp-and-dump losses in 2025.'' \41\
Another commenter stated that once the market assigns a company a low
value, it is difficult to maintain a fair and orderly market in its
securities, which negatively impacts all market participants.\42\ Other
commenters agreed with Nasdaq's statement that the challenges facing
companies with a very low market value are generally not temporary and
may be so severe that the company is not likely to regain or sustain
compliance,\43\ while one commenter stated that the proposal is
``appropriately tailored to identify companies that are not
sufficiently capitalized to warrant continued listing on a national
securities exchange.'' \44\
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\36\ See Letters from Katie Kolchin, CFA, Managing Director,
Head of Equity & Options Market Structure, and Gerald O'Hara Vice
President & Assistant General Counsel, SIFMA, dated Feb. 20, 2026
(``SIFMA Letter I''); Stephen John Berger, Managing Director, Global
Head of Government and Regulatory Policy, Citadel Securities, dated
Mar. 4, 2026 (``Citadel Letter I''); Benjamin L. Schiffrin, Director
of Securities Policy, Better Markets, Inc., dated May 22, 2026
(``Better Markets Letter''); James Toes, President & CEO, and Kevin
Skarbek, Chairman, Security Traders Association, dated May 22, 2026
(``STA Letter''); R. Cromwell Coulson, President and CEO, OTC
Markets Group Inc., dated May 28, 2026 (``OTC Letter''); Joanna
Mallers, Secretary, PTG, dated May 29, 2026 (``PTG Letter''); Katie
Kolchin, CFA, Managing Director, Head of Equity & Options Market
Structure, and Gerald O'Hara Vice President & Assistant General
Counsel, SIFMA, dated June 2, 2026 (``SIFMA Letter II''); Stephen
John Berger, Managing Director, Global Head of Government and
Regulatory Policy, Citadel Securities, dated June 12, 2026
(``Citadel Letter II''); Pete Ricketts, United States Senator, dated
July 15, 2026 (``Ricketts Letter'').
\37\ See STA Letter at 5; Citadel Letter I at 1; Citadel Letter
II at 1-2; SIFMA Letter II at 3. Another commenter stated that
studies have shown that ``financially distressed stocks'' deliver
``anomalously low returns, with investors apparently underestimating
the risk attached to such stocks.'' Better Markets Letter at 2
(citing Jonathan Macey et al., Down and Out in the Stock Market: The
Law and Economics of the Delisting Process, 51 J.L. & Econ. 683,
711-12, 2008).
\38\ See SIFMA Letter II at 2 (estimating that the number of
securities that trade under $1 on Nasdaq increased by 39% from 2020
to the end of March 2026); Citadel Letter I at 1 (stating that
``highly speculative, low-priced securities have proliferated in
recent years''). See also Citadel Letter II at 1.
\39\ STA Letter at 5. This commenter also stated that low-priced
securities are particularly vulnerable to price manipulation because
wrong-doers are more easily able to exert control over these
securities. See STA Letter at 6.
\40\ SIFMA Letter II at 3.
\41\ Id. (citing data from InvestorLink).
\42\ See PTG Letter at 2.
\43\ See SIFMA Letter I at 3 (citing Initial Proposal, supra
note 3, at 3935); PTG Letter at 1-2 (citing same).
\44\ SIFMA Letter I at 3. See also Better Markets Letter at 2;
PTG Letter at 2.
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Several commenters stated that Nasdaq's proposal to require the
companies listed on the NGS, NGM, and NCM to maintain a minimum MVLS of
at least $5 million will provide protection for investors from these
abuses.\45\ One commenter in particular stated that the proposal
``represents an important step towards strengthening investor
protection and promoting market integrity by addressing the potential
risks posed by low-priced securities.'' \46\
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\45\ See, e.g., Citadel Letter I at 1; Citadel Letter II at 1,
4; SIFMA Letter I at 2; SIFMA Letter II at 2-3; STA Letter at 6-7;
Better Markets Letter at 1, 2.
\46\ Citadel Letter at 1. This commenter further stated the lack
of concrete regulatory action to date has resulted in market
participants being compelled to take drastic self-help actions,
including a large retail broker suspending purchases in
``approximately 200 microcap exchange-listed securities that raise
red flags,'' and that ``the challenge could more effectively be
addressed by a transparent, uniform change in the continued listing
requirements.'' Citadel Letter II at 2 (citing letter from Jeffrey
Starr, Managing Director, Head of Operations, Charles Schwab & Co.,
dated Dec. 16, 2026, in response to SR-NASDAQ-2025-068 and SR-
NASDAQ-2025-069).
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Other commenters raised concerns regarding the proposed rule
change.\47\ Specifically, several commenters stated that the proposal
does not provide empirical evidence in support of the proposed $5
million MVLS threshold, such as evidence demonstrating that issuers
below the proposed threshold are financially distressed or present a
systemic problem warranting categorical intervention.\48\ In
particular, one commenter stated that ``[i]f fraud or manipulation risk
is disproportionately concentrated among particular issuer profiles, a
targeted, risk-based response focused on those characteristics would be
more precise and far less damaging than a blanket market-value trigger
applied to all issuers regardless of domicile, governance structure, or
compliance history.'' \49\
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\47\ See Letters from Chase Newton, dated Feb. 6, 2026 (``Newton
Letter''); Matthew Abenante, President, Strategic Investor Relations
LLC, dated Feb. 7, 2026 (``Strategic Investor Relations Letter'');
Muchun Zhu, Chief Executive Officer, Intercont (Cayman) Limited,
dated Feb. 10, 2026 (``Intercont Letter I''); Qing Yuan Wang, Chief
Financial Officer, Intercont (Cayman) Limited, dated Feb. 10, 2026
(``Intercont Letter II''); Brian L. Ross, Partner, Graubard Miller,
dated Feb. 10, 2026 (``Graubard Miller Letter''); Tingting Zhang,
CEO, Antelope Enterprise Holdings Limited, dated Feb. 11, 2026
(``Antelope Letter''); Siyu Yang, Chief Executive Officer, Baiya
International Group Inc., dated Feb. 12, 2026 (``Baiya Letter'');
Michael A. Adelstein, Partner, Kelley Drye & Warren LLP, dated Feb.
12, 2026 (``Kelley Drye & Warren Letter''); Fraser Atkinson, CEO,
GreenPower Motor Company Inc., dated Feb. 16, 2026 (``GreenPower
Letter''); Brian Glaspy, dated Feb. 12, 2026 (``Glaspy Letter'');
Sullivan & Worcester LLP, dated Feb. 17, 2026 (``Sullivan &
Worcester Letter I''); Meeshanthini Dogan, Chief Executive Officer,
Cardio Diagnostics Holdings, Inc., dated Feb. 17, 2026 (``Cardio
Diagnostics Letter''); Bradley J. Wilhite, Co-Founder & Managing
Partner, Ascendiant Capital Markets, LLC, dated Feb. 17, 2026
(``Ascendiant Letter''); Robert Mittman, Leslie Marlow, Melissa
Palat Murawsky, and Brad Shiffman, Blank Rome LLP, dated Feb. 18,
2026 (``Blank Rome Letter I''); Mark Reynolds, Chief Financial
Officer, GeoVax Labs, Inc., dated Feb. 18, 2026 (``GeoVax Labs
Letter''); Jeffrey Church, CFO, Imunon, Inc., dated Feb. 18, 2026
(``Imunon Letter''); Dr. Siaw Tung Yeng, Co-Founder and Co-CEO,
Mobile-health Network Solutions, dated Feb. 18, 2026 (``Mobile-
health Letter''); Adial Pharmaceuticals, Inc., dated Feb. 18, 2026
(``Adial Letter I''); Justin Stiefel, CEO, IP Strategy Holdings,
Inc., dated Feb. 18, 2026 (``IP Strategy Letter''); Marc Indeglia,
Small Public Company Coalition, dated Feb. 19, 2026 (``Small Public
Company Coalition Letter I''); Steve Shum, CEO, INVO Fertility,
Inc., dated Feb. 19, 2026 (``INVO Letter''); Sanjeev Luther,
President and CEO, Ernexa Therapeutics Inc., dated Feb. 19, 2026
(``Ernexa Letter''); Rebecca Byan, CFO, HCW Biologics, Inc., dated
Feb. 19, 2026 (``HCW Letter''); Michael Messinger, Chief Financial
Officer, SeaStar Medical, dated Feb. 19, 2026 (``SeaStar Letter');
James E. Kras, Chairman & CEO, Edible Garden AG Incorporated, dated
Feb. 19, 2026 (``Edible Garden Letter''); Dave A. Donohoe Jr.,
Donohoe Advisory Associates LLC, dated Feb. 19, 2026 (``Donohoe
Letter I''); Chris Kohler, SCWorx Corp. WORX, dated Feb. 19, 2026
(``SCWorx Letter''); Chip Patterson, General Counsel, MacKenzie
Realty Capital, Inc., dated Feb. 19, 2026 (``MacKenzie Realty
Letter''); Brad Hauser, President and Chief Executive Officer,
Autonomix Medical, Inc., dated Feb. 19, 2026 (``Autonomix Letter'');
Andrew Simpson, CEO, HeartSciences, Inc., dated Feb. 19, 2026
(``Heart Sciences Letter I''); Neil Dey, President & CEO, Bluejay
Diagnostics, Inc., dated Mar. 6, 2026 (``Bluejay Letter''); Marc
Indeglia, Small Public Company Coalition, dated Mar. 19, 2026
(``Small Public Company Coalition Letter II''); Xin Zuo, dated Mar.
20, 2026 (``Zuo Letter''); James Foster, Chief Executive Officer,
Virax Biolabs Group Limited (NASDAQ: VRAX), dated May 4, 2026
(``Virax Letter I''); Jonathan Shechter, Foley Shechter Ablovatskiy
LLP, dated May 20, 2026 (``Shechter Letter''); Cary Claiborne, Chief
Executive Officer, Adial Pharmaceuticals, Inc., dated May 21, 2026
(``Adial Letter II''); Blank Rome LLP, dated May 21, 2026 (``Blank
Rome Letter II''); Sullivan & Worcester LLP, dated May 22, 2026
(``Sullivan & Worcester Letter II''); Parker Blawusch, dated May 22,
2026 (``Blawusch Letter''); Marc Indeglia, The Small Public Company
Coalition, dated May 22, 2026 (``Small Public Company Coalition
Letter III''); Lucosky Brookman LLP, dated May 22, 2026 (``Lucosky
Letter''); David Danovitch, Angela Gomes, Brendan O'Brien, and
Phillip Carnevale, Sullivan & Worcester LLP, dated May 22, 2026
(``Sullivan & Worcester Letter III''); Andrew Simpson, Chief
Executive Officer, HeartSciences, Inc., dated May 22, 2026 (``Heart
Sciences Letter II''); David Danovitch, Angela Gomes, Brendan
O'Brien, and Phillip Carnevale, Sullivan & Worcester LLP, dated June
3, 2026 (``Sullivan & Worcester Letter IV''); Marc Indeglia,
Small Public Company Coalition, dated June 5, 2026 (``Small Public
Company Coalition Letter IV''); James Foster, Chief Executive
Officer, Virax Biolabs Group Limited (NASDAQ: VRAX), dated June 29,
2026 (``Virax Letter II''); David R. Burton, Senior Research Fellow,
Advancing American Freedom, dated July 4, 2026 (``Burton Letter'');
Anthony Diamandis, dated July 8, 2026 (``Diamandis Letter''); Brian
L. Ross, Partner, Graubard Miller, dated July 8, 2026 (``Graubard
Miller Letter II''); Michael Messenger, Chief Financial Officer,
SeaStar Medical, dated July 10, 2026 (``SeaStar Medical Letter
II''); Sullivan & Worcester LLP, dated July 10, 2026 (``Sullivan &
Worcester Letter V''); Dave A. Donohoe Jr., Donohoe Advisory
Associates LLC, dated July 10, 2026 (``Donohoe Letter II''); Marc
Indeglia, Small Public Company Coalition, dated July 10, 2026
(``Small Public Company Coalition Letter V''); Joseph D. Wilson,
Bevilacqua PLLC, dated July 10, 2026 (``Bevilacqua Letter''). One
commenter stated that the issuer and advisory community most
familiar with their capital market activities largely opposes the
proposed rule change and suggested that ``this pattern is itself
informative.'' See Heart Sciences Letter II at 4. The Commission
also received many comment letters regarding changes to the index
methodology for the Nasdaq 100. See, e.g., Letters from Farooq
Chaudhry, dated Apr. 14, 2026; Girard Miller, dated Mar. 19, 2026;
and Alex Audet, dated Mar. 16, 2026. These comments regarding the
Nasdaq 100 index methodology are not germane to the proposal.
\48\ See, e.g., Blank Rome Letter I at 5; Adial Letter I at 4;
IP Strategy Letter at 10-11; Small Public Company Coalition Letter I
at 6.
\49\ Small Public Company Coalition Letter I, at 12. See also
Burton Letter at 3.
---------------------------------------------------------------------------
A commenter that expressed support for the proposal, however stated
that ``[t]he defining characteristic of ramp-and-dump schemes is the
perpetrators'
[[Page 46999]]
ability to exert meaningful control over the security's price.'' \50\
This commenter further stated that ``[s]ecurities most susceptible to
such manipulation are precisely those with low publicly available
floats, which is the exact condition created by persistently low
MVLS.'' \51\ Another commenter stated that ``smaller issuers are more
susceptible to fraud and manipulation than larger issuers, because
their trading markets are thinner and less sophisticated (i.e., less
institutional shareholding and analyst monitoring).'' \52\ The Exchange
states that it agrees with these commenters.\53\
---------------------------------------------------------------------------
\50\ STA Letter at 6.
\51\ Id. This commenter also stated that ``factors such as
domicile, governance structure, and compliance history can
exacerbate risk; however, a complex, multi-factor targeted rule
based on these subjective assessments would be far less effective,
slower to administer, and easier to evade than Nasdaq's objective,
brightline standard.'' Id. at 7.
\52\ Better Markets Letter at 2.
\53\ See Amendment No. 1, supra note 8, at 38463.
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As part of the Commission's consideration of the proposed MVLS
Requirement, the Commission analyzed stock price and delistings data
for companies listed on Nasdaq and on NYSE American.\54\
---------------------------------------------------------------------------
\54\ The stock price data, which is at the security level, was
sourced from Center for Research in Security Prices (``CRSP'') and
accessed through Wharton Research Data Services (``WRDS''). This
data covers the time period from 2006 to 2025. The data provider
calculated the daily market capitalization of each security by
multiplying the closing price by the number of shares outstanding.
If a closing trade was not available, the closing price was
calculated as the midpoint of the best bid and ask quotes at the end
of the regular trading session. The Commission analyzed the stock
price data at the company level, excluded non-corporate issuers, and
only kept issues of common equity (including American Depositary
Receipts). The total equity market capitalization of each company
was obtained by aggregating the market capitalization of each of the
company's issues. The delistings data was sourced from CRSP. The
delisting analysis included only cases where the listing exchange
dropped the issue (i.e., it excluded cases where an issue was
delisted due to a merger, exchange or liquidation). If a company was
delisted from an exchange, re-listed, and then was delisted again,
only the first delisting event for the company was included in the
analysis.
---------------------------------------------------------------------------
The results of the Commission's analysis show that the number of
issuers that would have failed to comply with the MVLS Requirement, if
such requirement had been in place at the time, increased sharply from
2 issuers in 2021 to 140 issuers in 2023.\55\ Although the numbers
decreased to 122 issuers in 2024, and 91 issuers in 2025, they are
still higher than during the rest of the sample period, apart from
2008.
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\55\ Figure 1 and Figure 2 compare the number of issuers that
would have been delisted pursuant to the MVLS Requirement (number of
firms) against the year such issuers would have been delisted
pursuant to the MVLS Requirement (trigger year). Figure 1 only
includes data on Nasdaq or NYSE Americans issuers; and Figure 2 only
includes data on Nasdaq issuers. If an issuer failed to comply with
the MVLS Requirement multiple times during the sample period, both
analyses kept only the first of such dates.
[GRAPHIC] [TIFF OMITTED] TN27JY26.000
[[Page 47000]]
[GRAPHIC] [TIFF OMITTED] TN27JY26.001
In addition, the Commission analyzed the relationship of securities
that crossed specific MVLS thresholds between $1 million and $50
million, for various time durations between 30 and 90 trading days, and
their MVLS after 180 calendar days of first crossing a specific MVLS
threshold and specific duration.\56\ According to the analysis,
regardless of the MVLS threshold or time parameter selected, the median
MVLS after 180 days is below the specific MVLS threshold. This result
generally holds true for the MVLS Requirement (i.e., below $5 million
MVLS for 30 business days) over the sample period.\57\ 65% of the
issuers that failed to comply with the MVLS Requirement had a MVLS
under $5 million after 180 days, with the median valuation under $3.7
million.
---------------------------------------------------------------------------
\56\ Table 1 analyzes two variables: MVLS thresholds ranging
from $1 million to $50 million, and the number of consecutive
business days below a relevant MVLS threshold. Table 1 shows the
corresponding number of issuers that would have been delisted based
on the specific MVLS threshold and specific duration, and their
average and percentile distribution of MVLS after 180 calendar days.
For example, the sample for the first row includes the 4,342 issuers
that would have been delisted under a rule with a MVLS threshold of
$50 million for 30 consecutive days. The 180-day window reflects a
cure period that may be available for many failures to satisfy
continued listing requirements, including under Nasdaq Rules
5810(c)(2) and (3), and also the exception period that the Hearings
Panel would be able to grant for failures to comply with the MVLS
Requirement under proposed Nasdaq Rule 5815(c)(1)(I). If the MVLS
for a company is not available at the end of the 180-day window--
either because the company was delisted or because the data did not
include 2026--then the last MVLS in the window is used.
\57\ Figure 3 shows the percentile distribution of MVLS 180 days
after issuers first cross the proposed MVLS Requirement by the 25th
percentile (P25), the median (P50), and the 75th percentile (75)
against the year such issuers first cross the MVLS Requirement.
Table 1--MVLS of Issuers 180 Calendar Days After Crossing the Various MVLS Thresholds and Duration
--------------------------------------------------------------------------------------------------------------------------------------------------------
Market capitalization of companies 180 calendar days after crossing the
threshold ($, 000's)
Days below Companies that -------------------------------------------------------------------------------
Market cap threshold ($, 000's) threshold would have Sample statistics:
been delisted -------------------------------------------------------------------------------
Average P25 P50 P75 P90
--------------------------------------------------------------------------------------------------------------------------------------------------------
$50,000.................................... 30 4,342 $39,321 $14,918 $27,990 $44,132 $65,029
20,000..................................... 30 2,912 18,512 6,778 11,932 18,854 32,476
10,000..................................... 30 1,910 10,758 3,653 6,377 10,651 19,014
7,000...................................... 30 1,370 8,803 2,772 4,678 7,601 13,935
5,000...................................... 30 983 8,278 2,195 3,699 6,384 12,322
3,000...................................... 30 509 8,515 1,368 2,588 4,597 9,666
1,000...................................... 30 70 10,352 481 851 2,727 11,480
50,000..................................... 60 4,080 34,122 13,097 25,531 41,556 60,792
20,000..................................... 60 2,571 19,499 5,751 10,621 17,754 28,846
10,000..................................... 60 1,520 10,080 3,263 5,726 9,213 16,642
7,000...................................... 60 1,072 8,344 2,436 4,161 6,922 12,120
5,000...................................... 60 711 7,997 1,800 3,302 5,654 10,715
3,000...................................... 60 310 3,976 1,222 2,193 3,603 6,991
1,000...................................... 60 39 10,433 402 835 4,075 21,380
50,000..................................... 90 3,829 34,410 11,971 23,732 39,744 58,990
20,000..................................... 90 2,286 15,475 5,382 9,760 16,367 28,097
10,000..................................... 90 1,277 9,790 2,994 5,273 8,508 16,008
7,000...................................... 90 859 9,297 2,325 3,937 6,615 12,419
5,000...................................... 90 539 9,177 1,760 2,937 5,150 10,279
3,000...................................... 90 210 4,891 1,187 2,038 3,207 6,710
[[Page 47001]]
1,000...................................... 90 20 3,104 332 651 1,416 11,965
--------------------------------------------------------------------------------------------------------------------------------------------------------
BILLING CODE 8011-01-P
[GRAPHIC] [TIFF OMITTED] TN27JY26.002
The Commission's analysis also shows that issuers that would have
failed to comply with the MVLS Requirement had a high likelihood of
being delisted for reasons that indicate a failure to comply with other
quantitative continued listing requirements.\58\ Historically, when an
issuer failed to comply with the MVLS Requirement and was later
delisted, such delisting, at the median, occurred 259 days later, and
at the 75th percentile, 638 days later.\59\
---------------------------------------------------------------------------
\58\ The analysis, as shown in Figure 4, compared the fraction
of issuers on Nasdaq who were subsequently delisted after failing to
comply with the MVLS Requirement against the year such companies
failed to comply with the MVLS Requirement. The analysis only took
into account delistings by the Exchange, and excluded delistings by
mergers and acquisitions, liquidations, and exchanges. See CRSP US
DATABASES DATA DESCRIPTIONS GUIDE FOR CRSPACCESS (FIZ) (2026) at
247-250, available at https://indexes.morningstar.com/docs/guide/crsp-us-stock-databases-data-descriptions-guide-for-crspaccess-fiz?isRdp=true for the available delisting codes. In the sample
described in note 54, supra, the following five codes represent over
75% of delistings that occurred after failing to comply with the
MVLS Requirement: ``does not meet exchange's financial guidelines
for continued listing,'' ``insufficient capital, surplus, and/or
equity,'' ``price fell below acceptable level,'' ``bankruptcy,
declared insolvent,'' and ``delinquent in filing, non-payment of
fees.'' Approximately 18% of the delistings occurred at the request
of the issuer--e.g., the issue moved to the OTC market voluntarily--
and the delisting code does not indicate whether or not the issuer
was in compliance with listing requirements at the time of
delisting; however, most of these voluntary delistings occurred when
the stock price was below $1, indicating difficulty complying with
minimum price standards.
\59\ The relationship between an issuer crossing the MVLS
Requirement threshold and subsequently being delisted weakened over
time. One reason for the weakened relationship may be the amount of
time that the delisting and hearings process takes (i.e., some
companies that fell out of compliance with continued listing
requirements in the later portion of the time period analyzed may
ultimately be delisted based on these deficiencies, but remain
listed at this time). See, e.g., Nasdaq Rules 5810(c)(2)(B)
(providing that Exchange staff may, upon review of a compliance
plan, grant an extension of time to regain compliance of not greater
than 180 days) and 5815(c)(1)(A) (providing that the Hearings Panel
may, where it deems appropriate, grant an exception to continued
listing standards for a period not to exceed 180 days).
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[[Page 47002]]
[GRAPHIC] [TIFF OMITTED] TN27JY26.003
BILLING CODE 8011-01-C
Finally, the Commission's analysis indicates a fundamental tradeoff
inherent in selecting a threshold for delisting: a more stringent
threshold (i.e., higher MVLS or shorter duration) would capture issuers
that will eventually be delisted for other reasons, but also implicate
issuers that otherwise would have remained above the threshold and
stayed listed.\60\
---------------------------------------------------------------------------
\60\ The Commission conducted analysis on false positives
(issuers failing to comply with the MVLS Requirement, but were never
delisted), and false negatives (issuers never failing to comply with
the MVLS Requirement, but were delisted), as shown in Table 2.
Similar to Table 1, Table 2 analyzes two variables: MVLS thresholds
ranging from $1 million to $50 million, and the number of
consecutive business days below the relevant MVLS threshold. Table 2
shows the corresponding number of issuers that would have been
delisted based on the specific MVLS threshold and specific duration,
issuers that would have failed to meet the relevant MVLS threshold
and duration and were subsequently delisted (i.e., expedited
delistings), false positives, and false negatives. Table 2 shows a
mechanical inverse relationship between false positives and false
negatives. As the thresholds become more stringent (i.e., higher
MVLS or shorter duration), the number of false positives generally
increases.
Table 2--Delisting Outcomes of Issuers Crossing the Various MVLS Thresholds and Time Durations, Between 2006 and 2025
--------------------------------------------------------------------------------------------------------------------------------------------------------
False
positives as a
Days below Companies that Expedited False False fraction of
Market cap threshold ($, 000's) threshold would have delistings positives negatives companies that
been delisted would have
been delisted
--------------------------------------------------------------------------------------------------------------------------------------------------------
50,000.................................................. 30 4,342 1,670 2,672 320 62%
20,000.................................................. 30 2,912 1,365 1,547 625 53
10,000.................................................. 30 1,910 941 969 1,049 51
7,000................................................... 30 1,370 695 675 1,295 49
5,000................................................... 30 983 486 497 1,504 51
3,000................................................... 30 509 250 259 1,740 51
1,000................................................... 30 70 43 27 1,947 39
50,000.................................................. 60 4,080 1,597 2,483 393 61
20,000.................................................. 60 2,571 1,194 1,377 796 54
10,000.................................................. 60 1,520 743 777 1,247 51
7,000................................................... 60 1,072 522 550 1,468 51
5,000................................................... 60 711 337 374 1,653 53
3,000................................................... 60 310 156 154 1,834 50
1,000................................................... 60 39 22 17 1,968 44
50,000.................................................. 90 3,829 1,524 2,305 466 60
20,000.................................................. 90 2,286 1,047 1,239 943 54
10,000.................................................. 90 1,277 600 677 1,390 53
7,000................................................... 90 859 391 468 1,599 54
[[Page 47003]]
5,000................................................... 90 539 249 290 1,741 54
3,000................................................... 90 210 103 107 1,887 51
1,000................................................... 90 20 11 9 1,979 45
--------------------------------------------------------------------------------------------------------------------------------------------------------
The Exchange has identified risks pertaining to securities with an
MVLS below $5 million, including a heightened susceptibility to
manipulation and difficulty maintaining fair and orderly markets in
these securities. The results of the Commission's analysis support
approval of the Exchange's proposal to impose the MVLS Requirement. The
increased number of securities with an MVLS below $5 million in recent
years, along with the significant likelihood that such securities will
eventually be delisted, warrants the Exchange's consideration of the
continued listing of securities with a low level of market
capitalization.\61\ Moreover, when securities have an MVLS under $5
million for 30 consecutive business days, there is a significant
likelihood that they will continue to have an MVLS under $5 million
after another 180 calendar days, which is a significant period of
time.\62\ The Commission recognizes that securities with a small market
capitalization may be more prone to manipulation. When a security has a
smaller market capitalization, the cost required to accumulate a
position from the public float that is large enough to influence the
price of the security is reduced. Accordingly, a would-be manipulator
may find it less costly to manipulate the price of the security. Thus,
the continued listing of companies with low MVLS raises concerns that
these securities may have heightened susceptibility to manipulation.
These concerns are exacerbated if the security lacks a sufficient
public float, investor base, or natural trading interest that could
otherwise mitigate the susceptibility to manipulation by promoting fair
and orderly markets in the security.
---------------------------------------------------------------------------
\61\ See Figure 1, Figure 2, and Figure 4. See supra note 38 and
accompanying text.
\62\ See Table 1. In addition, the Commission's analysis
demonstrates that there is an inherent tradeoff to be made when
selecting a numerical threshold for a continued listing requirement
between eliminating those companies that are the intended target and
providing increased flexibility for listed issuers. See Figure 3 and
Table 2.
---------------------------------------------------------------------------
It is reasonable for the Exchange to determine to raise its listing
standards and list only securities of a higher quality. The imprimatur
of listing on a particular exchange derives from investors'
expectations that the listed issuer meets certain standards set by the
exchange and that a listing exchange will use its judgment regarding
the level at which to set those standards.\63\ Those standards are
informed by an exchange's regulatory and commercial considerations and
the Act provides exchanges with discretion, subject to the requirements
of the Act, to set those standards as they see fit with the
understanding that not all companies will meet those standards
initially or over time. Moreover, the addition of the MVLS Requirement
is not unfairly discriminatory because the proposed standard is
reasonably tailored to the Exchange's goal of addressing the risks that
it has identified with respect to securities with a small market
capitalization. The $5 million MVLS threshold will provide for a level
of market capitalization below which there may be a heightened
susceptibility to manipulation and difficulties maintaining fair and
orderly markets in these securities. And the requirement that a
security must remain below $5 million MVLS for 30 consecutive business
days before being subject to immediate suspension and delisting will
target instances where securities have demonstrated a significant
longevity of these risks. Therefore, the Commission finds that the
Exchange's proposal, as set forth in Amendment No. 1, to immediately
suspend and delist companies that fail to comply with the MVLS
Requirement is reasonably designed and consistent with the requirements
of Section 6(b)(5) of the Act that the rules of the Exchange be
designed to prevent fraudulent and manipulative acts and practices,
promote just and equitable principles of trade, protect investors and
the public interest, and not be designed to permit unfair
discrimination between customers, issuers, brokers, or dealers.
---------------------------------------------------------------------------
\63\ See Securities Exchange Act Release No. 38961 (Aug. 22,
1997), 62 FR 45895, 45899 (Aug. 29, 1997) (SR-NASD-97-16) (finding
Nasdaq's proposal to raise its listing standards consistent with the
Act because the proposal ``reflects the NASD's judgment that it
wants only higher quality companies to avail themselves of the
Nasdaq marketplace, and the imprimatur that such inclusion confers''
and the increased standards ``are directly related to the NASD's
intended goals of enhancing its listing standards'').
---------------------------------------------------------------------------
1. Comments Regarding the MVLS Threshold
Several commenters stated that the proposed $5 million MVLS
threshold would result in the delisting of companies based on sector-
specific \64\ or market or global situational factors \65\ that may
cause temporary declines in a company's valuation unrelated to its
actual financial health.\66\ Commenters
[[Page 47004]]
also raised concerns that the proposal unfairly discriminates against
and would disproportionately burden emerging and tightly held
companies, as well as small cap companies.\67\ Two commenters stated
that there would be a disparate impact on emerging and small cap
companies as these companies regularly experience volatile market
conditions that result in fluctuations in share prices and market
capitalization on a day-to-day basis.\68\ One of these commenters
further stated that the proposal may disproportionately impact tightly
held issuers, whose investors do not trade actively and therefore do
not contribute to the stock's public float.\69\
---------------------------------------------------------------------------
\64\ See, e.g., Blank Rome Letter I at 3-4; Blank Rome Letter II
at 3; Adial Letter I at 2; Adial Letter II at 2; Imunon Letter;
Donohoe Letter I at 4; Mackenzie Realty Letter at 2; Virax Letter I
at 1, Lucosky Letter at 4; Burton Letter at 2. One commenter stated
that the proposal's failure to distinguish a company's ``temporary
valuation volatility'' and ``materially different financial
profiles'' raises concerns under Sections 6(b)(4) and 6(b)(5) of the
Act. See IP Strategy Letter at 2, 7. This commenter also stated that
the proposal may not be equitably allocating regulatory burden
associated with delisting among similarly situated issuers, which
raises proportionality concerns within the statutory framework,
including Section 6(b)(4) of the Act. See id. at 2-3. Since the
proposal does not concern fees, the applicability of Section 6(b)(4)
of the Act is not considered herein.
\65\ See, e.g., Strategic Investor Relations Letter at 2;
Graubard Miller Letter at 1-3; Antelope Letter at 2; Baiya Letter at
1; Kelley Drye & Warren Letter at 2 and 6; Sullivan & Worcester
Letter I at 2-3; Sullivan & Worcester Letter II at 2; Sullivan &
Worcester Letter III at 2; Blank Rome Letter I at 3; Blank Rome
Letter II at 3; GeoVax Letter; Imunon Letter; Mobile-health Letter;
Adial Letter I at 2; Adial Letter II at 2; INVO Letter at 2; Ernexa
Letter at 2; SeaStar Letter at 2; Mackenzie Realty Letter at 2;
Donohoe Letter I at 2; Lucosky Letter at 2, 4; Burton Letter at 2.
\66\ See Strategic Investor Relations Letter at 4; Intercont
Letter I; Intercont Letter II; Blank Rome Letter I at 2; Blank Rome
Letter II at 3; Heart Sciences Letter II at 2; IP Strategy Letter at
9. One commenter stated that ``[m]arket-wide downturns, sector-
specific market corrections, interest rate fluctuations and
geopolitical events can materially impact market capitalization over
short intervals.'' Sullivan & Worcester Letter I at 2-3. See also
Blank Rome Letter I at 3-4; Adial Letter I at 2; Adial Letter II at
2-3; Donohoe Letter I at 3; IP Strategy Letter at 4-5.
\67\ See, e.g., Blank Rome Letter I at 4; Adial Letter I at 2.
\68\ See Blank Rome Letter I at 2-3; Adial Letter I at 2.
\69\ See Blank Rome Letter I at 4.
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Commenters also took the position that the proposal would lead to
delisting of some companies that may recover.\70\ One of these
commenters attached a report by Professor Craig M. Lewis that presents
an empirical study raising concerns that the proposal may prematurely
delist companies that would otherwise regain compliance.\71\ The Lewis
Report analyzed approximately 816 companies that fell below the $5
million threshold for 30 days between 2006 and 2025, and concluded that
``temporarily falling below the proposed threshold is not a reliable
indicator of permanent failure.'' \72\ The Lewis Report stated that of
the 816 companies that would have been delisted based on the proposal,
78% recovered once above the $5 million threshold during the time
period studied, 45% of the 816 companies are not delisted, and 212
companies are trading above $5 million, representing over $22 billion
in current market capitalization.\73\ One commenter, citing the Lewis
Report, stated ``[t]he Exchange's contention that . . . issuers cannot
recover is, in our respectful view, directly contradicted by . . .
evidence from the Exchange's own historical listing data.'' \74\
Another commenter stated that the evidentiary record does not support
Nasdaq's premise that a sustained MVLS below $5 million is a reliable
indicator of fundamental, non-temporary distress and heightened
investor protection risk, such that an issuer is unlikely to regain and
sustain compliance.\75\
---------------------------------------------------------------------------
\70\ See, e.g., Small Public Company Letter I at 3-4; Foley
Shechter Letter at 2; Heart Sciences Letter II at 1-2; IP Strategy
Letter at 8-9; BlankRome Letter II at 2; Adial Letter II at 1-2.
\71\ See Small Public Company Coalition Letter I at 3-4, 6-7,
and 28-32 (stating that an empirical analysis indicates ``many firms
that previously fell below the $5 million threshold for 30
consecutive business days ultimately recovered and continued
operating successfully''). See also Nasdaq's Proposed Amended
Listing Requirements, Craig M. Lewis, Ph.D., dated Feb. 19, 2026
(attached as Exhibit A to the Small Public Company Coalition Letter
I) (``Lewis Report'').
\72\ See Small Public Company Coalition Letter I at 3-4 and
Lewis Report at paragraphs 28-32.
\73\ See Lewis Report, paragraph 26. The Lewis Report stated
that of the 816 companies, 451 (55%) were delisted on other bases.
See id. at paragraph 29. The Lewis Report offered potential
explanations for the recovery of these companies, including improved
operating performance, a change to their business model, a capital
restructuring, or scaling change through acquisitions. See id. at
paragraph 28.
\74\ Heart Sciences Letter II at 2. See also Foley Shechter
Letter at 2.
\75\ See Adial Letter II at 1-2.
---------------------------------------------------------------------------
The Exchange stated that it acknowledges the position taken by
several commenters that some companies with a low market capitalization
may meaningfully recover and states that it modified the Initial
Proposal to allow the Hearings Panel to grant an exception from the
Staff Delisting Determination for a period not to exceed 180 days for a
company to demonstrate compliance with initial listing
requirements.\76\ According to the Exchange, this revision addresses
concerns raised by commenters that the Initial Proposal did not
accommodate scenarios where situational factors result in temporary
declines in a company's valuation that are unrelated to its actual
financial health.\77\
---------------------------------------------------------------------------
\76\ See Amendment No. 1, supra note 8, at 38462. See notes 158-
159 and 164-168, infra, for further discussion of these proposed
changes to the Initial Proposal to allow the Hearings Panel to grant
an exception period.
\77\ See Amendment No. 1, supra note 8, at 38462-3.
---------------------------------------------------------------------------
The Commission recognizes the overall conclusion of the Lewis
Report that the Exchange's proposal to immediately suspend and delist
securities that fail to comply with the MVLS Requirement may result in
the delisting of companies that later recover and that some of those
companies may otherwise have remained listed on the Exchange. Both the
Commission's analysis and the Lewis Report agree that a significant
number of companies that failed to comply with the MVLS Requirement did
not recover. Moreover, as discussed above, the Commission's analysis
shows that 65% of the issuers that failed to comply with the MVLS
Requirement had a MVLS under $5 million after 180 days.\78\ Even if
some of the issuers that remained below $5 million MVLS after 180 days
eventually recovered, this analysis indicates that such issuers may
persist with an MVLS below $5 million for an extended period of time.
Given that the Exchange has identified risks that securities with a
small market capitalization have heightened susceptibility to
manipulative trading activity and that there may be difficulty
maintaining fair and orderly markets in these securities, it is not
unfairly discriminatory and is consistent with Section 6(b)(5) of the
Act for the Exchange to immediately suspend and delist securities that
fall below the MVLS Requirement.
---------------------------------------------------------------------------
\78\ See Table 1 and surrounding discussion.
---------------------------------------------------------------------------
Some commenters expressed concern that factors influencing MVLS may
be outside the company's control and therefore a company's MVLS is not
a reliable indicator of performance.\79\ Many of these commenters
stated that a company's MVLS can be impacted by directional pressure
exerted by opportunistic traders and short sellers.\80\ Further, one
commenter stated that temporary market dislocations based on market
dynamics, rather than economic reality, could affect a company's
MVLS.\81\ In response, the Exchange states that MVLS is based on the
number of securities issued and outstanding and market value. According
to the Exchange, the number of securities issued and outstanding is
entirely within the company's control.\82\ The Exchange also states
that the value of a company is based primarily on the company's
prospects, and that an MVLS of below $5 million is therefore a good
indication that continued listing is not appropriate.\83\
---------------------------------------------------------------------------
\79\ See, e.g., Strategic Investor Relations Letter at 2; Blank
Rome Letter at 2; GeoVax Letter; Mobile-health Letter; Mackenzie
Realty Letter at 1; Donohoe Letter I at 2 and 4; IP Strategy Letter
at 2; Intercont Letter, Drye & Warren Letter at 3; Sullivan &
Worcester Letter at 2; Donohoe Letter II at 3. One commenter stated
that the MVLS metric excludes pre-funded warrants and other nominal-
exercise price convertible instruments and thus understates the
value of companies that have such instruments outstanding. See
Sullvan & Worcester Letter V at 5-6.
\80\ See, e.g., Sullivan & Worcester Letter at 2-3; Strategic
Investor Relations Letter at 2; Graubard Miller Letter at 1-3;
Antelope Letter at 2; Baiya Letter at 1, Drye & Warren Letter at 2
and 6; Blank Rome Letter at 3.
\81\ See Intercont Letter. See also Blank Rome Letter at 3. One
commenter stated that ``good companies should not be suspended due
to aspects of society that are unrelated to the issuer's
fundamentals.'' Kelley Drye & Warren Letter at 3.
\82\ See Amendment No. 1, supra note 8, at 38463.
\83\ See id.
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Several commenters stated that the rigid $5 million MVLS threshold,
coupled with automatic suspension after 30 consecutive business days,
could increase the potential for manipulative trading and market abuse
[[Page 47005]]
in an effort to drive down the value of a company's stock, causing a
company to be delisted.\84\ In particular, commenters stated the $5
million MVLS threshold and requirement that a company be below that
threshold for 30 consecutive business days could incentivize short
selling activity in smaller companies to drive the market value of
these companies below the $5 million MVLS threshold and keep it there
for the time period required to trigger delisting.\85\ Commenters also
stated that the threat of delisting may contribute to and encourage
further downward price pressure and incentivize opportunistic trading
behavior, and a company's stock may experience increased volatility and
reduced liquidity in the period leading up to potential delisting.\86\
One of these commenters stated that rational investors will discount
the stock prices of companies near the threshold to account for the
possibility of forced delisting; analysts and counterparties may
hesitate to engage with companies facing even a remote possibility of
exchange removal.\87\
---------------------------------------------------------------------------
\84\ See, e.g., Small Public Company Coalition Letter I at 4-5,
8; Small Public Company Coalition Letter III at 3-4; IP Strategy
Letter at 3; Graubard Miller Letter at 1; Donohoe Letter I at 2;
Ascendiant I Letter at 1-2; Virax Letter I at 1-2; Sullivan &
Worcester Letter II at 2; Sullivan & Worcester Letter III at 2;
Blank Rome Letter II at 3-4, 7-8; Lucosky Letter at 3; Burton Letter
at 3; Sullivan & Worcester Letter V at 6.
\85\ See, e.g., Ascendiant Letter at 1; IP Strategy Letter at 3-
4; Strategic Investor Relations Letter at 2; Graubard Miller Letter
I at 2; Antelope Letter at 2; Baiya Letter at 1; Drye & Warren
Letter at 6; Sullivan & Worcester Letter I at 2-3; Blank Rome Letter
I at 3; GeoVax Letter; Imunon Letter; Mobile-health Letter; Adial
Letter I at 2; INVO Letter at 2; Ernexa Letter at 2; SeaStar Letter
I at 2; Mackenzie Realty Letter at 2 (stating, ``[w]ith only a 30-
day window needed to trigger automatic suspension, the rule
effectively provides a roadmap for predatory investors to force
companies off the exchange''); Donohoe Letter I at 2. See also
Burton Letter at 3; Donohoe Letter II at 1, 3.
\86\ See, e.g., Graubard Miller Letter at 1-3; Strategic
Investor Relations Letter at 5, Donohoe Letter I at 2; Small Public
Company Coalition Letter I at 4-5; IP Strategy Letter at 3 and 5;
Virax Letter I at 1-2; Adial Letter at 2-3; Adial Letter II at 4-5;
Heart Sciences Letter I at 2; Lucosky Letter at 1-3; Sullivan &
Worcester Letter V at 4.
\87\ See Small Public Company Coalition Letter I at 5 and 8. See
also IP Strategy Letter at 3.
---------------------------------------------------------------------------
In response, the Exchange states that market manipulation is
illegal and commenters should submit any evidence of violations to the
appropriate authorities for investigation and enforcement.\88\ The
Exchange also states that it has a multitude of Commission-approved
price-based listing requirements, all of which could be accused of
encouraging the same type of activity, and commenters provide no actual
evidence of the activities they speculate will occur.\89\
---------------------------------------------------------------------------
\88\ See Amendment No. 1, supra note 8, at 38463.
\89\ See id.
---------------------------------------------------------------------------
MVLS, as a combination of the quantity of listed securities and
their market value, is a reasonable measure to be used in a
quantitative listing standard to determine whether a company should
continue to be listed on the Exchange.\90\ While commenters expressed
concern that the MVLS Requirement would create an incentive for
opportunistic trading behavior, or for bad actors to manipulate the
price of a company's securities to trigger immediate suspension and
delisting (including that the 30 consecutive business day measurement
period may contribute to this risk), the 30 consecutive business day
requirement associated with the $5 million MVLS threshold could
mitigate the risk of actual opportunistic or manipulative activities
for the purpose of triggering immediate suspension and delisting. As
discussed above, the immediate suspension and delisting of securities
that fall below the MVLS Requirement would prevent continued listing of
securities that may have a heightened susceptibility to manipulative
trading activity.
---------------------------------------------------------------------------
\90\ Several existing Nasdaq rules include a specified MVLS as
an initial or continued listing requirement. See, e.g., Nasdaq Rules
5505(b)(2)(A), 5505(b)(4)(A), 5550(b)(2). Although some commenters
suggested alternatives to the use of MVLS, including Market Value of
Publicly Held Shares or Market Value of Unrestricted Publicly Held
Shares, these alternatives are not part of the current proposal. See
notes 132-134, infra, discussing alternatives to the use of MVLS.
---------------------------------------------------------------------------
2. Comments Regarding the Lack of a Cure Period
Several commenters raised concerns about the proposal's absence of
a cure or compliance period that would allow companies that fail to
comply with the MVLS Requirement to regain compliance before being
delisted.\91\ In particular, commenters stated that this lack of a
compliance period is inconsistent with the compliance periods that
Exchange rules provide for companies that fall below certain other
continued listing requirements, such as a failure to maintain a minimum
bid price of $1.00 per share.\92\ According to one commenter, a 180-day
compliance period is one of the ``principal mechanisms by which
temporarily distressed but ultimately viable issuers complete capital-
raising transactions and return to compliance.'' \93\
---------------------------------------------------------------------------
\91\ See, e.g., Sullivan & Worcester Letter II at 6; Lucosky
Letter at 3; Adial Letter I at 2; Small Public Company Coalition
Letter I at 13; Strategic Investor Relations Letter at 1-2; Sullivan
& Worcester Letter V at 7.
\92\ See, e.g., Sullivan & Worcester Letter II at 6 (``These
compliance periods reflect a longstanding recognition that temporary
deficiencies, particularly those driven by market conditions rather
than operational failures, should not result in the immediate and
irreversible loss of exchange listing.''); Lucosky Letter at 3
(``The absence of a cure period deprives issuers of the opportunity
to pursue capital-raising alternatives or otherwise address short-
term conditions and imposes consequences that are disproportionate
to those under other continued listing standards.''); Adial Letter I
at 2 (stating that not utilizing a cure period comparable to other
Exchange listing standards ``effectively subjects'' small-cap,
emerging growth, and early-stage companies to a ``more stringent and
less forgiving standard than larger, more liquid issuers''); Small
Public Company Coalition Letter I at 13; Strategic Investor
Relations Letter at 1-2; Sullivan & Worcester Letter V at 7.
\93\ HeartSciences Letter II at 2.
---------------------------------------------------------------------------
However, in support of the absence of a cure period, one commenter
stated that the application of the proposal only after an issuer
remains below the minimum MVLS threshold for 30 consecutive business
days is a ``meaningful persistence requirement'' and a ``feature [that]
helps distinguish sustained deterioration from temporary volatility.''
\94\ According to the commenter, once this condition is met, the
Exchange may reasonably conclude that a cure period would
``unnecessarily prolong'' heightened risks of manipulation, investor
confusion, and diminished market quality.\95\ The Exchange states that
it agrees with this commenter's position.\96\
---------------------------------------------------------------------------
\94\ STA Letter at 10-11. See also SIFMA Letter II at 7.
\95\ See STA Letter at 11. See also Citadel Letter I at 1
(stating that compliance periods ``have previously allowed issuers
to avoid timely delisting'').
\96\ See Amendment No. 1, supra note 8, at 38463.
---------------------------------------------------------------------------
While the Commission acknowledges that Exchange rules provide for a
cure period for failure to meet certain continuing listing standards,
the Exchange has proposed to immediately suspend and delist companies
whose MVLS falls below $5 million for 30 consecutive business days
based on concerns that such companies may have a heightened
susceptibility to manipulation.\97\ A company's failure to comply with
the MVLS Requirement may be indicative of serious difficulties within
such company that are likely to continue to put downward pressure on
the stock price, such that there may not be a sufficient likelihood
that the company would regain a $5 million MVLS threshold within a
compliance period. As discussed above, and according to the
Commission's analysis, 65% of the issuers that failed to comply with
the MVLS Requirement had a MVLS under $5 million after 180 days, with
the median valuation under $3.7
[[Page 47006]]
million. The Commission's analysis supports a conclusion that the
ability of companies to regain $5 million MVLS within 180 days after
failing to comply with such MVLS threshold is limited.\98\ Companies
that fail to meet the MVLS Requirement may have heightened
susceptibility to manipulative trading activity, contrary to the goal
of protecting investors and the public interest. Thus while, in part,
the delisting process is designed to allow companies experiencing
temporary financial or business issues to regain compliance with
continued listing standards, the Exchange's proposal, as set forth in
Amendment No. 1, reasonably balances this design with the need to
prevent the prolonged trading of such companies.
---------------------------------------------------------------------------
\97\ See Amendment No. 1, supra note 8, at 38461. See also supra
notes 50-53 and accompanying text.
\98\ See supra notes 56-57 and accompanying text.
---------------------------------------------------------------------------
3. Comments Regarding Need for the Proposed Rule Change
Several commenters stated that the proposal overlaps with recently
adopted rules related to continued listing and Exchange proposals
designed to address the same low-valuation risk factors identified in
the current proposal.\99\ In addition, commenters stated that the
Commission should first observe and consider the effects of recent and
pending changes to Exchange listing rules before considering harsher
standards.\100\ Commenters also stated that the companies that are not
able to sustain an MVLS of at least $5 million do not appear to pose
heightened risks to investors that are not already addressed by
existing Nasdaq requirements.\101\
---------------------------------------------------------------------------
\99\ See Cardio Diagnostics Letter at 2; Small Public Company
Coalition Letter I at 9-10; Small Public Company Coalition Letter II
at 1-2; Mackenzie Realty Letter at 1; Donohoe Letter I at 6-7;
Bluejay Letter at 3; Heart Sciences Letter II at 4. One commenter
stated that the Commission must consider the Exchange's proposal in
conjunction with the ``overlapping'' continued listing proposals by
the New York Stock Exchange and their impact together on ``issuer
choice, exchange competition, liquidity, capital formation, and
market stability.'' Small Public Company Coalition Letter II at 1-2
(citing to SR-NYSEAMER-2025-72 and SR-NYSEAMER-2026-17).
\100\ See Bluejay Letter at 3; Donohoe Letter I at 6-7.
\101\ See, e.g., Blank Rome Letter I at 5; Blank Rome Letter II
at 2-3, 6; Adial Letter I at 4; Adial Letter II at 1-2; IP Strategy
Letter at 10-11; Heart Sciences Letter II at 1-2, 3-4; Shechter
Letter at 2; Sullivan & Worcester Letter II at 6-7; Sullivan &
Worcester Letter III at 6-7; Small Public Company Coalition Letter I
at 2, 6-7, 13; Small Public Company Coalition Letter III at 2-3, 5.
Several commenters stated that the companies that are not able to
sustain an MVLS of at least $5 million do not appear to pose
heightened risks to investors that are not already addressed by
existing Commission requirements, but did not provide examples of
such Commission requirements. See, e.g., Blank Rome Letter I at 5;
Blank Rome Letter II at 2; Adial Letter I at 4.
---------------------------------------------------------------------------
While existing Nasdaq continued listing requirements may address
some similar concerns, as discussed above, the risks of heightened
susceptibility to manipulative trading activity and difficulty
maintaining fair and orderly markets in the securities of companies
that are not able to sustain an MVLS of at least $5 million support the
adoption of the proposed MVLS Requirement. The Exchange has proposed,
and the Commission has approved, certain price-based continued listing
requirements that reduce the period of time for a company to regain
compliance based on investor protection concerns.\102\ The current
proposal and rules that the Commission approved previously address
different continued listing requirements and work in tandem to address
similar Exchange concerns with lower-priced securities. For example,
the Commission stated in the context of removing compliance periods for
securities that have had excessive reverse stock splits and securities
that are trading at very low prices,\103\ that there were investor
protection concerns with allowing the securities identified in that
proposal to have an extended period of time to regain compliance with
the relevant requirements.\104\ Similar to the Reverse Stock Split
Proposal, the Exchange states that companies identified in this
proposal are not usually experiencing temporary problems and have other
compliance issues.\105\ Moreover, while a reverse stock split increases
a company's stock price, it does not directly change the company's
MVLS.\106\ If a company is trading at a price compliant with the
relevant bid price requirements, but has a very low MVLS, it could
continue to be susceptible to manipulative trading.
---------------------------------------------------------------------------
\102\ See, e.g., Securities Exchange Act Release No. 88716 (Apr.
21, 2020), 85 FR 23393 (Apr. 27, 2020) (SR-NASDAQ-2020-001)
(``Reverse Stock Split Proposal'') (approving modification of
delisting process for securities with a bid price at or below $0.10
and for securities that have had excessive reverse stock splits);
Securities Exchange Act Release No. 104318 (Dec. 5, 2025), 90 FR
57225, 57227 (Dec. 10, 2025) (SR-NASDAQ-2025-065) (``Minimum Bid
Price Proposal'') (approving proposal to amend the application of
minimum bid price rule for securities with a bid price at or below
$0.10 and stating that ``the Exchange's proposal is reasonably
designed to enhance its continued listing standards as it
appropriately identifies securities listed on its market that are
more likely to have serious recurrent issues in regaining and
maintaining compliance with the [bid price requirement]'').
\103\ See Reverse Stock Split Proposal at 23394. See also Nasdaq
Rule 5810(c)(3)(A), which, as modified by the Reverse Stock Split
Proposal, provides that if a company's security fails to meet the
continued listing requirement for minimum bid price and the company
has effected a reverse stock split over the prior one-year period;
or has effected one or more reverse stock splits over the prior two-
year period with a cumulative ratio of 250 shares or more to one,
then the Company shall not be eligible for any compliance period
specified Nasdaq Rule 5810(c)(3)(A) and the Exchange shall issue a
Staff Delisting Determination with respect to that security.
\104\ See Reverse Stock Split Proposal at 23395-6.
\105\ See Reverse Stock Split Proposal at 23395-6; supra note 17
and accompanying text.
\106\ See supra note 18.
---------------------------------------------------------------------------
One commenter referenced the recently adopted Nasdaq Rule IM-5101-4
and stated that the Commission's rationale when approving the rule--
that concerns about securities susceptible to manipulation would be
addressed through a case-by-case process tied to trading activity--is
contradictory with the ``automatic MVLS trigger with no cure period and
no comparable individualized assessment'' of the current proposal.\107\
However, Nasdaq Rule IM-5101-4 provides that the Exchange may exercise
its authority under Nasdaq Rule 5101 to delist the security where a
security exhibits trading activity that is indicative of potential
manipulation and the Commission has implemented a temporary trading
suspension of that security pursuant to Section 12(k) of the Act
(``Section 12(k) suspension'').\108\ Given that Nasdaq Rule IM-5101-4
is specific to instances where there has been a Section 12(k)
suspension, any overlap with the current proposal would be minimal.
Further, the Commission recognizes that the Exchange's discretionary
authority under Nasdaq Rule 5101 complements its quantitative listing
requirements that provide explicit standards that are clearly stated
and can be applied uniformly.
---------------------------------------------------------------------------
\107\ Small Public Company Coalition Letter IV at 3.
\108\ See Securities Exchange Act Release No. 105603 (June 3,
2026), 91 FR 34675 (June 8, 2026) (SR-NASDAQ-2026-009).
---------------------------------------------------------------------------
4. Comments Regarding Effects on Delisted Companies
Several commenters stated that the proposal would make raising
capital more difficult for small companies.\109\ One commenter
discussed the benefits of exchange listing for both smaller companies
and investors in the context
[[Page 47007]]
of cost of capital.\110\ Specifically, this commenter stated that
exchange listing provides smaller companies access to a larger set of
investors and greater liquidity through access to secondary markets and
allows investors to benefit from a set of Commission rules designed to
enhance and organize the flow of information to investors.\111\ The
commenter concluded that this lowers the cost of capital because
investors ``are willing to pay a premium for the ability to trade
easily,'' and ``are more willing to make long-dated investments when
they know their positions can be readily transferred to other
investors.'' \112\ The commenter further stated that investors are less
inclined to invest in, and lenders are less willing to extend
financing, to companies trading close to the bright-line threshold,
which intensifies the downward price pressure.\113\
---------------------------------------------------------------------------
\109\ See, e.g., Intercont Letter I; Intercont Letter II;
Antelope Letter at 1; Baiya Letter at 1; Cardio Diagnostics Letter
at 2; GeoVax Letter; Imunon Letter; Mobile-health Letter; Adial
Letter I at 3-4; Adial Letter II at 3; Small Public Company
Coalition Letter I at 4; INVO Letter at 1-2; Ernexa Letter at 2; HCW
Letter at 2; SeaStar Letter I at 2; Edible Garden Letter at 2;
Mackenzie Realty Letter at 2; Heart Sciences Letter at 1-2; Donohoe
Letter I at 3-4; GreenPower Letter; Ascendiant Letter at 1; Blank
Rome Letter II at 6-7; Lucosky Letter at 2; Donohoe Letter II at 3.
Several commenters expressed concerns that companies above the $5
million threshold may also face challenges raising capital or
obtaining debt financing due to threat of possible delisting. See
Ascendiant Letter at 1; Small Public Company Coalition Letter I at
4.
\110\ See Lewis Report at paragraphs 6-15.
\111\ See id.
\112\ Id. This commenter also stated that ``[f]irms with more
liquid equity rely more heavily on equity financing and incur lower
issuance costs, which in turn facilities greater investments in
physical assets and R&D.'' Id.
\113\ See id. at 4. One commenter stated that incentivized
``sustained downward price pressure'' in proximity to the proposed
threshold and amplification of ``valuation compression in otherwise
solvent issuers'' implicates Section 3(f) of the Act and questioned
whether the proposal will promote efficiency, competition, and
capital formation. See IP Strategy Letter at 4.
---------------------------------------------------------------------------
One commenter stated that the proposal may incentivize smaller
issuers to seek listing on less regulated venues, rely more heavily on
private capital markets with reduced transparency, or delay or forgo
public listing.\114\ Another commenter stated that the proposal may
increase risk to investors by incentivizing companies ``to engage in
value-distorting actions,'' including ``reverse stock splits, overly
dilutive financings, excessive marketing campaigns or premature asset
sales.'' \115\
---------------------------------------------------------------------------
\114\ See Blank Rome Letter I at 5.
\115\ Adial Letter I at 4. See also Sullivan & Worcester Letter
I at 2; Blank Rome Letter at 2-3; Adial Letter I at 2.
---------------------------------------------------------------------------
Several commenters discussed the negative consequences of trading
in the OTC market upon immediate delisting and suspension.\116\
Commenters stated that when a security is delisted and moves from
Nasdaq to the OTC market, the price of such security experiences
further decline because institutional investors with exchange-listing
mandates will liquidate positions, market makers will withdraw, analyst
coverage will cease, and liquidity will decline.\117\ One commenter
believed that such consequences, in addition to elimination of the
regulatory and disclosure framework that exchange listing provides,
would harm retail investors, ``who disproportionately hold micro-cap
securities.'' \118\ Several commenters also stated that shareholders
may face difficulty exiting positions without significant price
concessions.\119\ Several commenters further stated that many OTC
issuers are not subject to the same shareholder approval requirements
for significant corporate actions, leaving retail investors with fewer
procedural protections and limited resources in the event of materially
adverse corporate actions.\120\ Several commenters stated that trading
in the OTC market would impact their access to the equity capital
markets, cause reputational harm, and directly impair their ability to
fund developments.\121\ One commenter discussed the benefits of the
regulatory framework for exchange-listed securities, which are NMS
securities.\122\ On the contrary, another commenter stated that the OTC
markets ``are valuable trading venues that serve capital formation for
small, large, and emerging companies.'' \123\
---------------------------------------------------------------------------
\116\ See, e.g., Donohoe Letter I at 4; Strategic Investor
Relations Letter at 3; Kelley Drye & Warren Letter I at 6; Sullivan
& Worcester Letter I at 5; Mackenzie Realty Letter at 2; Heart
Sciences Letter I at 2; IP Strategy Letter at 3, 6; Donohoe Letter
II at 3; Bevilacqua Letter at 1-2.
\117\ See Strategic Investor Relations Letter at 3; Kelley Drye
& Warren Letter at 6; Sullivan & Worcester Letter I at 5; Sullivan &
Worcester Letter II at 3-4; Mackenzie Realty Letter at 2; Heart
Sciences Letter I at 2; IP Strategy Letter at 3, 6; Lucosky Letter
at 3.
\118\ See Strategic Investor Relations Letter at 3. See also
Sullivan & Worcester Letter I at 5.
\119\ See, e.g., Sullivan & Worcester Letter I at 5; Lucosky
Letter at 3; Bevilacqua Letter at 2.
\120\ See Sullivan & Worcester Letter I at 5; Small Public
Company Coalition Letter I at 8; Ascendiant Letter at 2.
\121\ See e.g., Antelope Letter at 1, Blank Rome Letter I at 2,
Blank Rome Letter II at 5.
\122\ See Lewis Report at paragraphs 16-18. This commenter
provided examples of Commission rules and industry plans designed to
improve the information environment and trade execution quality that
apply to NMS securities, or exchange-listed securities, but not to
OTC securities. See id.
\123\ STA Letter at 3 (stating that it ``strongly disputes''
other commenters' views that ``automatic delisting will inflict
severe, irreversible harm on affected companies by forcing them into
the [OTC] markets''). See also STA Letter at 9-10; OTC Letter at 1,
2 (stating that the OTC market can provide a low-cost, less complex
alternative to listing exchanges, while also focusing on providing
discloses that incentivize compliance with securities regulations);
SIFMA Letter II at 5, n.8 (``[w]hile the effect of delisting can be
negative for companies, these are predominantly companies without
sound financials . . . [o]ther companies are delisted or leave
listings exchanges with little negative effects on their stocks and
resources saved'').
---------------------------------------------------------------------------
Several commenters stated that the proposal's disproportionate
burden on small-cap issuers, emerging growth companies, and issuers
operating in developing sectors is an unnecessary burden on competition
under Section 6(b)(8) of the Act.\124\ In particular, one commenter
stated that the MVLS Requirement imposes a disproportionate compliance
burden on micro-cap and small-cap issuers.\125\
---------------------------------------------------------------------------
\124\ See e.g., IP Strategy Letter at 4, 9-10; Sullivan &
Worcester Letter II at 4-5; Blank Rome Letter I at 2-4. See also
supra notes 67 to 69 and accompanying text.
\125\ See Sullivan & Worcester Letter II at 4.
---------------------------------------------------------------------------
In response, the Exchange states that the proposal balances the
goals of capital formation and investor protection by setting a
transparent threshold where sustained trading under that threshold
results in suspension of trading and delisting of the securities.\126\
The Exchange believes that any incidental burden on affected companies
is necessary to better protect prospective investors and in furtherance
of the purpose of the Act.\127\
---------------------------------------------------------------------------
\126\ See Amendment No. 1, supra note 8, at 38464.
\127\ See id.
---------------------------------------------------------------------------
The Commission acknowledges that there are many benefits to
companies and their shareholders related to being listed on a national
securities exchange, including increased access to capital formation
and promotion of market efficiency. Commenters have raised concerns
that delisting companies that fall below the MVLS Requirement may lead
to several negative outcomes, including, but not limited to, making
raising capital more difficult for small companies \128\ and
incentivizing smaller issuers to seek listing on less regulated
venues.\129\ However, the benefits of listing and possible consequences
of delisting do not override the need for an exchange to maintain and
enforce continued listing standards such that the proposed rule would
not be consistent with Section 6(b)(5) or Section 6(b)(8) of the Act.
As discussed above, the immediate suspension and delisting of companies
that do not comply with the MVLS Requirement will address identified
risks of heightened susceptibility to manipulative trading activity and
difficulty maintaining fair and orderly markets in these securities,
and it is not unfairly discriminatory to impose a standard that is
reasonably tailored to address those risks. Moreover, companies that
fail to comply with the MVLS Requirement and are subsequently delisted
will continue to be able to trade in the OTC market, which provides a
viable alternative for the trading of companies that do not meet the
requirements for Exchange
[[Page 47008]]
listing. These companies may also apply for Exchange listing in the
future. The Exchange's proposal to immediately suspend and delist
companies that fail to comply with the MVLS Requirement, as set forth
in Amendment No. 1, is reasonably designed to prevent fraudulent and
manipulative acts and practices, promote just and equitable principles
of trade, and protect investors and the public interest, consistent
with Section 6(b)(5) of the Act. Accordingly, the Exchange's proposal
is not designed to permit unfair discrimination between customers,
issuers, brokers, or dealers, consistent with Section 6(b)(5) of the
Act; and will not impose any burden on competition that is not
necessary or appropriate in furtherance of the purposes of the Act,
consistent with Section 6(b)(8) of the Act.
---------------------------------------------------------------------------
\128\ See supra notes 109-113 and accompanying text.
\129\ See supra note 114 and accompanying text.
---------------------------------------------------------------------------
5. Comments Suggesting Alternatives
Several commenters suggested alternatives to the proposal.\130\ One
commenter suggested imposing stricter initial listing guidelines,
rather than changing the continued listing requirements.\131\ Another
commenter suggested using quantitative thresholds (e.g., involving cash
and cash equivalents, net tangible assets, readily marketable
securities or digital assets, or sufficient working capital) rather
than MVLS.\132\ Two commenters that support the proposal suggested that
the Exchange consider using market capitalization measures that only
consider publicly held shares (i.e., Market Value of Publicly Held
Shares and Market Value of Unrestricted Publicly Held Shares) rather
than MVLS.\133\ Another commenter suggested expanding the MVLS
calculation to include securities that are not listed on the
Exchange.\134\ Other commenters suggested that the Exchange use an
averaging methodology for measuring sustained non-compliance with the
minimum $5 million MVLS standard.\135\ One commenter, who supports the
proposal, stated that it believes the $5 million MVLS threshold may not
be sufficient and recommended that the Commission monitor, on an
ongoing basis, the effectiveness of the proposed rule upon
adoption.\136\
---------------------------------------------------------------------------
\130\ See SIFMA Letter I at 3; SIFMA Letter II at 1; Citadel
Letter I at 1-2; Newton Letter; Bluejay Letter at 3; IP Strategy
Letter at 13; Blank Rome Letter I at 5-6; Blank Rome Letter II at 8-
9; Adial Letter I at 4; Adial Letter II at 5; Strategic Investor
Relations Letter at 5; Sullivan & Worcester Letter I at 3; Graubard
Miller Letter 3; Autonomix Letter at 2; Small Public Company
Coalition Letter I at 15; Small Public Company Coalition Letter III
at 4; Lucosky Letter at 4; Glaspy Letter.
\131\ See Newton Letter.
\132\ See IP Strategy Letter at 13.
\133\ See SIFMA Letter I at 3; SIFMA Letter II at 1; Citadel
Letter I at 1-2.
\134\ See Bluejay Letter at 3. See also Sullivan & Worcester
Letter V at 5-6.
\135\ See Strategic Investor Relations Letter at 5; Graubard
Miller Letter 3; SIFMA Letter II at 8.
\136\ See STA Letter at 7-8.
---------------------------------------------------------------------------
Other commenters suggested that the Exchange provide enhanced
public disclosures once an issuer approaches the minimum $5 million
MVLS threshold,\137\ while another commenter recommended the Exchange
use an enhanced monitoring mechanism for issuers approaching the
threshold to allow heightened oversight without immediate
suspension.\138\ Two commenters suggested that the Exchange conduct a
qualitative review of a company on a case-by-case basis prior to
delisting,\139\ while another commenter recommended the Exchange adopt
a mechanism for considering sector-specific or situational and
qualitative factors.\140\ Another commenter recommended extending the
deficiency period from 30 days to 120 days.\141\ Other commenters
suggested that there should be a compliance period to allow companies
to take corrective action for deficiencies \142\ and that the Hearings
Panel should be permitted to make additional considerations before
suspension.\143\ One commenter requested that, if the proposal were
approved, effectiveness of the changes should be delayed for no less
than 12 months.\144\
---------------------------------------------------------------------------
\137\ See Graubard Miller Letter at 3; Blank Rome Letter I at 5;
Adial Letter I at 4.
\138\ See Small Public Company Coalition I at 14.
\139\ See Blank Rome Letter I at 6; Adial Letter I at 4.
\140\ See Strategic Investor Relations Letter at 5.
\141\ See Small Public Company Coalition I at 13.
\142\ See, e.g., Strategic Investor Relations Letter at 5;
Sullivan & Worcester Letter I at 3. See also Graubard Miller Letter
at 3; Autonomix Letter at 2; IP Strategy Letter at 13.
\143\ See, e.g., IP Strategy Letter at 13.
\144\ See Small Public Company Coalition III at 7. See also
Bluejay Letter I at 3 (suggesting a 6-12 month transition period).
---------------------------------------------------------------------------
Even if commenters' suggestions could provide alternative means to
address concerns that securities with low market capitalization are
susceptible to manipulative trading activity and may present
difficulties with the maintenance of fair and orderly markets in these
securities, these suggestions are not part of Nasdaq's proposal and the
Commission must approve the proposal if it finds the proposal is
consistent with the Act and the rules thereunder.\145\ For the reasons
discussed herein, the Exchange's proposal to immediately suspend and
delist companies that fail to comply with the MVLS Requirement, as set
forth in Amendment No. 1, is reasonably designed to prevent fraudulent
and manipulative acts and practices, to protect investors and public
interest, and is not designed to permit unfair discrimination between
customers, issuers, brokers, or dealers, consistent with Section
6(b)(5) of the Act.
---------------------------------------------------------------------------
\145\ See 15 U.S.C. 78s(b)(2)(C)(i).
---------------------------------------------------------------------------
B. Lack of a Stay Pending Hearings Panel Review
The Exchange proposes to amend Nasdaq Rule 5815(a)(1)(B) to provide
that a timely request for a hearing will not stay the suspension of the
securities from trading pending the issuance of a written Hearings
Panel decision where the company received a Staff Delisting
Determination due to a failure to comply with the MVLS
Requirement.\146\ According to the Exchange, given the difficulties
associated with maintaining fair and orderly markets in securities of
low value companies, it is not appropriate for these companies to
continue trading during the pendency of the Hearings Panel review
process.\147\ Companies may appeal the Staff Delisting Determination to
the Hearings Panel, but the companies' securities will generally trade
in the OTC market while the appeal is pending.\148\
---------------------------------------------------------------------------
\146\ See supra note 21 and accompanying text. See also
Amendment No. 1, supra note 8, at 38462.
\147\ See supra note 22 and accompanying text.
\148\ See supra note 21.
---------------------------------------------------------------------------
Several commenters raised concerns regarding the removal of the
automatic stay of suspension pending Hearings Panel review.\149\
Several commenters opposed the proposal to amend Nasdaq Rule
5815(a)(1)(B)(ii) to provide that a hearing request shall not stay the
suspension of trading when there is a deficiency relating to the MVLS
Requirement, and stated that a stay pending appeal is an important
procedural safeguard for listed companies to receive meaningful review
before facing the harms caused by suspension and being relegated to
trade on the OTC market.\150\ One of these commenters stated that the
lack of a stay of the suspension of trading pending review renders
appeal rights ``largely illusory'' and that the stay pending appeal is
``a fundamental safeguard that ensures listed companies receive
[[Page 47009]]
meaningful review before suffering the severe consequences of
delisting.'' \151\ Another commenter stated that in the absence of a
stay, issuers will ``suffer[ ] the full adverse effects of delisting--
loss of liquidity, institutional selling pressure, and reputational
harm--before any review occurs.'' \152\ Several commenters stated that
the absence of an opportunity for a hearing before the Hearings Panel
before suspension of trading would violate issuers' rights to
procedural due process and the fair procedure requirement under Section
6(b)(7) of the Act.\153\
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\149\ See Strategic Investor Relations Letter at 2-3, 5; Kelley
Drye & Warren Letter at 5; Donohoe Letter I at 2-3, 5-6; IP Strategy
Letter at 7-8; Heart Sciences Letter II at 5; Virax Letter I at 2;
Shechter Letter at 2; Adial Letter II at 3-4; Sullivan & Worcester
Letter II at 3; Sullivan & Worcester Letter III at 3; Small Public
Company Coalition Letter III at 4-6; Bevilacqua Letter at 2.
\150\ See, e.g., Strategic Investor Relations Letter at 2-3;
Kelly Drye & Warren Letter at 5; Donohoe Letter I at 5-6; Blank Rome
Letter II at 4-5; Bevilacqua Letter at 2.
\151\ Strategic Investor Relations Letter at 2-3.
\152\ Blank Rome Letter II at 5. This commenter also stated that
under existing Nasdaq rules, the only existing precedent for denying
a stay applies to companies whose business plan is to complete one
or more acquisitions and that fail to complete their business
combination within 36 months. See Blank Rome Letter II at 4. See
also Adial Letter II at 4 (stating that the limited precedent for
Nasdaq denying a stay relates to ``fundamentally different
circumstances''). However, Nasdaq rules enumerate several other
listing deficiencies for which a timely request for a hearing will
not stay the suspension of securities from trading, including where
the issuer fails to meet certain bid price requirements. See Nasdaq
Rule 5815(a)(1)(B)(ii).
\153\ See, e.g., Donohoe Letter I at 5-6; Donohoe Letter II at
1, 4; IP Strategy Letter at 7-8; Sullivan & Worcester Letter II at
5; Sullivan & Worcester Letter III at 5.
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In response, the Exchange states that it continues to believe that
immediate suspension from trading for a company that failed to maintain
the MVLS Requirement is appropriate, and references previous Commission
statements in In re Tassaway.\154\ The Exchange also points to the
statements by supporting commenters, who disagree that automatic
delisting for failing to maintain the MVLS Requirement will cause
``severe and irreversible harm to affected companies by moving them to
the OTC markets.'' \155\ The Exchange states that, in its own
experience, companies can take action to regain compliance while
trading in the OTC market.\156\
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\154\ See Amendment No. 1, supra note 8, at 38463 (citing In re
Tassaway, Securities Exchange Act Release No. 11291 (Mar. 13, 1975),
45 SEC 706, 6 SEC Docket 427 (``In re Tassaway'')). Two commenters
expressed disagreement and concerns with how the Exchange referenced
and relied on statements made by the Commission in In re Tassaway.
See Small Public Company Coalition Letter V at 5 and Sullivan &
Worcester Letter V at 3-4.
\155\ Amendment No. 1, supra note 8, at 38463.
\156\ See id. The Exchange states that it has observed that
companies that are non-compliant with Nasdaq Rule 5815(a)(1)(B)(ii)
have regained compliance and have resumed trading on the Exchange.
See id.
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As discussed above, a company that fails to comply with the MVLS
Requirement may be likely to have an insufficient investor base, public
float, and trading interest necessary to promote fair and orderly
markets in their securities and relatedly may have heightened
susceptibility to manipulation. It is consistent with investor
protection to prohibit the securities of such companies from continuing
to trade on the Exchange during a review of the delisting
determination.\157\ Given these concerns, the Exchange's proposal, as
set forth in Amendment No. 1, to immediately suspend and delist
companies that fail to comply with the MVLS Requirement is reasonably
designed to prevent fraudulent and manipulative acts and practices, to
promote just and equitable principles of trade, to protect investors
and the public interest, and is not designed to permit unfair
discrimination between customers, issuers, brokers, or dealers,
consistent with Section 6(b)(5) of the Act.
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\157\ See In re Tassaway at 709 (``[P]rimary emphasis must be
placed on the interests of prospective future investors . . . [who
are] entitled to assume that the securities in [Nasdaq] meet
[Nasdaq's] standards. Hence the presence in [Nasdaq] of non-
complying securities could have a serious deceptive effect.''). The
Commission previously approved an Exchange rule that prohibits
trading during the pendency of an appeal based on concerns of
potential manipulation in the stock. See Securities Exchange Release
No. 102245 (Jan. 17, 2025), 90 FR 8081 (Jan. 23, 2025).
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The proposal is also consistent with Section 6(b)(7) of the Act in
that it provides a fair procedure for the prohibition or limitation by
the Exchange of any person with respect to access to services offered.
A listed company whose security is subject to immediate suspension and
delisting under the proposal after failing to comply with the MVLS
Requirement will still be able to seek review of the Staff Delisting
Determination by the Hearings Panel, as discussed below.
C. Hearings Panel Review Process
In the Initial Proposal, the Exchange proposed to modify Nasdaq
Rule 5815(c)(1)(H) to provide that, in the case of a company that
failed to comply with the MVLS Requirement, the Hearings Panel would
only be permitted to reverse a delisting decision based on a
determination that the Staff Delisting Determination was in error.\158\
Under the Initial Proposal, the Hearings Panel would not have been
permitted to grant an exception under Nasdaq Rule 5815(c)(1)(A)
allowing the company additional time to regain compliance.\159\
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\158\ See Initial Proposal, supra note 3, at 3936. Under the
Initial Proposal, the proposed changes to Nasdaq Rule 5815(c)(1)(H)
included failure to comply with the MVLS Requirement as one of the
cases under which the Hearings Panel is not permitted to consider
facts indicating that the company had regained compliance under
Nasdaq Rule 5815(c)(1)(E) or grant an exception under Nasdaq Rule
5815(c)(1)(A) allowing the company additional time to regain
compliance. See id.
\159\ See id.
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Two commenters explicitly supported the proposed modifications to
Nasdaq Rule 5815(c)(1)(H) in the Initial Proposal.\160\ However,
several commenters raised concerns regarding the limitations on
Hearings Panel discretion to review the delisting determination under
the Initial Proposal.\161\ One commenter stated that the proposal to
amend Nasdaq Rule 5815(c)(1)(H) would reduce the Hearings Panel to a
``ministerial function'' and suggested that Nasdaq should allow the
Hearings Panel to have full discretion to consider evidence that the
company has regained compliance and grant exceptions to allow
additional time.\162\ Several commenters stated that Nasdaq is not
operating within statutory constraints of Section 6(b)(7) of the Act by
attaching automatic suspension and delisting consequences to a
mechanical price-based trigger, and limiting the scope and practical
effectiveness of appellate review.\163\
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\160\ See Citadel Letter I at 1; PTG Letter at 1.
\161\ See, e.g., Strategic Investor Relations Letter at 2-3, 5;
Kelley Drye & Warren Letter at 5; Donohoe Letter I at 2-3, 5-6; IP
Strategy Letter at 7-8; Heart Sciences Letter II at 5; Virax Letter
I at 2; Shechter Letter at 2; Adial Letter II at 3-4; Sullivan &
Worcester Letter II at 3; Sullivan & Worcester Letter III at 3;
Small Public Company Coalition Letter III at 4-6.
\162\ See Strategic Investor Relations Letter at 3, 5. See also
Kelley Drye & Warren Letter at 5; IP Strategy Letter at 7-8; Donohoe
Letter I at 3.
\163\ See e.g., IP Strategy Letter at 7-8, Sullivan & Worcester
Letter II at 2 and 6.
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In response to these concerns, in Amendment No. 1, the Exchange
modifies this aspect of the proposal to allow the Hearings Panel, when
reviewing a delisting decision based on a company's failure to comply
with the MVLS Requirement, to grant an exception of up to 180 days for
the company to come back into compliance by satisfying the Exchange's
initial listing requirements. Specifically, instead of modifying
existing Nasdaq Rule 5815(c)(1)(H),\164\ the Exchange
[[Page 47010]]
proposes to adopt Nasdaq Rule 5815(c)(1)(I) to provide that in the case
of a company that received a Staff Delisting Determination notice due
to a failure to comply with the MVLS Requirement, the Hearings Panel
may reverse a delisting decision where the Hearings Panel determines
that the Staff Delisting Determination was in error, or grant an
exception for a period not to exceed 180 days from the Staff Delisting
Determination for the company to demonstrate that it meets all
requirements for initial listing.\165\ The Exchange states that it
acknowledges that some companies with a low market capitalization may
meaningfully recover and therefore their continued listing on the
Exchange may be appropriate.\166\ The Exchange further states that the
proposed addition of Nasdaq Rule 5815(c)(1)(I) appropriately balances
the Exchange's obligation to protect investors while allowing a company
whose operational and financial difficulties are indeed temporary to
demonstrate to an independent Hearings Panel that continued listing is
appropriate.\167\ Moreover, the Exchange states that requiring
companies in these circumstances to satisfy the Exchange's initial
listing requirements, which are generally higher than the continued
listing requirements, will provide a level of certainty that the
company will not immediately fall out of compliance with the MVLS
Requirement or any other continued listing requirement.\168\
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\164\ Under current Nasdaq Rule 5815(c)(1)(H), the Hearings
Panel is prevented from granting an exception or considering facts
indicating that a company has regained compliance where a company
whose business plan is to complete one or more acquisitions, as
described in Nasdaq Rule IM-5101-2, fails to satisfy (i) the
requirement set forth in Nasdaq Rule IM-5101-2(b) and Nasdaq Rule
5452(a)(3) to complete one or more business combinations within 36
months of the effectiveness of its initial public offering (``IPO'')
registration statement; or (ii) the requirements for initial listing
immediately following a business combination as required by Nasdaq
Rule IM-5101-2. In these situations, the Hearings Panel may only
reverse a delisting decision where the Hearings Panel determines
that the Staff Delisting Determination letter was in error and that
the company never failed to satisfy the requirement. See Nasdaq Rule
5815(c)(1)(H). Under the proposal as modified by Amendment No. 1,
Nasdaq Rule 5815(c)(1)(H) would remain unchanged.
\165\ See supra note 23 and accompanying text.
\166\ See supra note 76 and accompanying text.
\167\ See supra note 24 and accompanying text.
\168\ See Amendment No. 1, supra note 8, at 38462.
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Several commenters stated that proposed Nasdaq Rule 5815(c)(1)(I)
does not provide a meaningful cure period to companies that fail to
comply with the MVLS Requirement.\169\ One commenter stated that the
amended proposal retains ``one of the most problematic aspects of the
rule'' in continuing to deny a company that fails to meet the MVLS
Requirement an ordinary stay of suspension pending Hearings Panel
review.\170\ This commenter also stated that the proposal continues to
risk delisting companies that are experiencing a temporary decline in
MVLS.\171\ Other commenters raised concerns that while the amended
proposal provides for a cure period, the decision whether to grant this
exception would be entirely within the Hearings Panel's
discretion.\172\
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\169\ See, e.g., Virax Letter II at 1-2; Graubard Miller Letter
II at 2 and 5-6; Donohoe Letter II at 2; Sullivan & Worcester Letter
V at 1-4; Small Public Company Coalition Letter V at 2, 8-10.
\170\ See Graubard Miller Letter II at 3. See also Small Public
Company Coalition Letter V at 8.
\171\ See Graubard Miller Letter II at 4.
\172\ See Small Public Company Coalition Letter V at 9 (stating
that the Exchange has not identified any criteria governing the
Hearings Panel's determination to grant an exception); Sullivan &
Worcester Letter V at 2 (stating that the Hearings Panel's ability
to grant an exception is ``entirely discretionary and
unpredictable'').
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Commenters also expressed concern with the proposed requirement
that a company that has been delisted, but has been granted an
exception to the delisting determination, must meet initial listing
standards instead of continued listing standards.\173\ One commenter
stated ``[a]n issuer that has been relegated to the OTC market is less
likely to satisfy the higher initial listing standards required for the
New Hearings Panel Exception, precisely because the metrics that govern
initial listing, including market value of listed securities, market
value of publicly held shares, and minimum bid price, deteriorate
significantly as a direct consequence of suspension.'' \174\
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\173\ See Sullivan & Worcester Letter V at 2-3; Small Public
Company Coalition Letter V at 3. One of these commenters further
stated that changes in Amendment No. 1 do not address the Lewis
Report findings. See id. 4-5. Another commenter also stated that the
issuer must satisfy the materially higher initial listing standards,
while at the same time experiencing ``the reduced liquidity,
diminished institutional participation, reputational harm, and
impaired access to capital caused by the suspension itself.'' Small
Public Company Coalition Letter V at 8.
\174\ Sullivan & Worcester Letter V at 3.
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By providing the Hearings Panel the authority to grant an exception
to a delisting determination, and allowing up to 180 days for a company
to come back into compliance by satisfying the Exchange's initial
listing requirements, the proposal will allow the Hearings Panel to
determine whether the circumstances demonstrate that it is appropriate
to provide a company with an opportunity to regain compliance and
continue trading on the Exchange. The requirement that a company must
satisfy the Exchange's initial, generally higher, listing
standards,\175\ rather than simply achieving a $5 million MVLS to
regain compliance, will help to ensure that such companies do not
immediately fall out of compliance with the proposed MVLS Requirement
and other quantitative continued listing requirements. In this way, the
proposal reasonably balances the objectives of the delisting process,
which, in part, is designed to allow companies experiencing temporary
financial or business issues the opportunity to regain compliance with
listing standards, with the need to prevent the prolonged trading of
the securities of a company that fails to comply with the MVLS
Requirement and may experience heightened susceptibility to
manipulative trading activity and be less able to maintain fair and
orderly markets. Thus, the Exchange's proposal, as set forth in
Amendment No. 1, is reasonably designed to prevent fraudulent and
manipulative trading practices and to protect investors and public
interest and is consistent with Section 6(b)(5) of the Act.
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\175\ For example, the Market Value of Unrestricted Publicly
Held Shares requirement for a company seeking initial listing
through an IPO on NGM is at least $15 million; and the Market Value
of Publicly Held Shares requirement for continued listing on NGM is
$15 million, unless the company seeks to maintain listing through
the equity standard, in which case the Market Value of Publicly Held
Shares requirement is $5 million. See Nasdaq Rules 5405(b)(1)(C),
5405(b)(2)(C), 5405(b)(3)(B), 5450(b)(1)(C), 5450(b)(2)(D),
5450(b)(3)(C). The minimum bid price requirement is $4 for initial
listing, and $1 for continued listing. See Nasdaq Rules 5405(a)(1),
5450(a)(1), 5505(a)(1), 5550(a)(2).
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Further, the proposal is consistent with Section 6(b)(7) of the Act
in that it provides a fair procedure for the prohibition or limitation
by the Exchange of any person with respect to access to services
offered. A listed company whose security is subject to immediate
suspension and delisting under the proposal after failing to comply
with the MVLS Requirement will still be able to seek review of the
Staff Delisting Determination by the Hearings Panel. Further, while
such company's security will not trade on the Exchange during the
pendency of any appeal, the Hearings Panel will continue to have
authority under the proposal to grant an exception for a period not to
exceed 180 days from Staff Delisting Determination for the company to
demonstrate that it meets all requirements for initial listing.\176\
Moreover, the Hearings Panel will continue to have the authority to
consider any failure to meet any quantitative standard for continued
listing, and the company will be given written notice of such
consideration and an opportunity to respond.\177\ The company will also
continue to be able to appeal a Hearings Panel decision to the Listing
Council.\178\
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\176\ See supra note 23 and accompanying text.
\177\ See Nasdaq Rule 5815(c)(3).
\178\ See supra note 14 (citing Nasdaq Rule 5820).
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For these reasons, the Commission finds that the proposed rule
change, as modified by Amendment No. 1, is consistent with the Act.
IV. Conclusion
It is therefore ordered, pursuant to Section 19(b)(2) of the
Act,\179\ that the
[[Page 47011]]
proposed rule change (SR-NASDAQ-2026-004), as modified by Amendment No.
1, be and hereby is, approved.
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\179\ 15 U.S.C. 78s(b)(2).
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\180\
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\180\ 17 CFR 200.30-3(a)(12).
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Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2026-15060 Filed 7-24-26; 8:45 am]
BILLING CODE 8011-01-P