NASDAQ Listing Requirements

Nasdaq Amends Its 20% Dilution Shareholder Approval Rule

Posted by Securities Attorney Laura Anthony | December 18, 2018 Tags: NASDAQ, Nasdaq Amends Its 20% Dilution Shareholder Approval Rule

Effective September 26, 2018, Nasdaq amended Rule 5635(d) to provide greater flexibility and certainty for companies to determine when a shareholder vote is necessary to approve a transaction that would result in the issuance of 20% or more of the outstanding common stock or 20% or more of outstanding voting power in a PIPE or similar private placement financing transaction. The amendment did not change the remainder of Rule 5635, which requires shareholder approval for transactions such as issuances involving an acquisition of stock or assets of another company, a change of control, or equity compensation that result in a 20% or greater dilution.

Generally, Rule 5635(d) requires Nasdaq-listed companies to obtain shareholder approval in private placement transactions involving the issuance of (i) common stock or securities convertible into or exercisable for common stock at a price less than the greater of book or market value which, together with sales by officers, directors or substantial shareholders of the company, equals 20% or more of common stock or 20% or more of the voting power outstanding before the issuance; or (ii) the sale, issuance, or potential issuance by the company of common stock or securities convertible into or exercisable for common stock equal to 20% or more of the common stock or 20% or more of the voting power outstanding before the issuance for less than the greater of book or market value of the stock. The amendment combines these two sections into one and amends the pricing test for triggering shareholder approval. The new pricing test amends the definition of “market value” solely for purposes of Rule 5635(d) to create a new “Minimum Price” as described below.

Prior to the amendment, Rule 5635(d) exempted from the shareholder approval requirement offerings priced at or above the greater of book or market value per share with market value defined as the closing bid price. That is, the Rule generally only required a vote if the dilution resulted from offerings that were priced at a discount to market value or book value. The Rule amendment eliminates the book value test, and revises the definition of market value to incorporate a five-day average and to use the last closing price instead of the consolidating closing bid price. As a result, under the amended Rule, a private offering involving the issuance of 20% or more of the common stock or 20% or more of the voting power outstanding before the issuance will not require shareholder approval if the offer price is greater than or equal to the lesser of: (i) the last closing price immediately preceding the signing of a binding agreement; or (ii) the average closing price of the common stock on Nasdaq for the five trading days immediately preceding the signing of the binding agreement (the “Minimum Price”). Shareholder approval will be required for private placements priced below the Minimum Price.

Nasdaq’s impetus for amending the rule was to strike a balance between the protection of investors via the shareholder approval rule and a company’s flexibility to efficiently negotiate a deal to raise money quickly with a price that accurately reflects the market value of its security. In the Rule change release, Nasdaq noted that book value is based on historic values and, therefore, is not an appropriate measure of whether a transaction is dilutive or should otherwise require shareholder approval. Moreover, book value is one of several financial data points that is already incorporated into the market value of a security.

Using the last closing price, rather than the last closing bid price, reflects sale prices at one of the more liquid times of the day and, therefore, is believed to be more transparent to investors. Adding the option of choosing between the closing bid price and the five-day average closing price provides more flexibility and certainty for companies in their transactions. For example, in a declining market, the five-day average closing price will be above the current market price, which could make it difficult for companies to close transactions because investors could buy shares at a lower price in the market. Likewise, in a rising market, the five-day average could result in a below-market transaction triggering shareholder approval requirements.

The Rule amendment also combines the existing two sections of 5635(d) into one such that a 20% issuance for purposes of the Rule would involve a transaction other than a public offering, involving the sale, issuance, or potential issuance by the company of common stock or securities convertible into or exercisable for common stock, which, alone or together with sales by officers, directors, or substantial shareholders of the company, equals 20% or more of the common stock or 20% or more of the voting power outstanding before the issuance. This change does not make any substantive change but certainly makes the language more clear and concise.

The Author
Laura Anthony, Esq.
Founding Partner
Anthony L.G., PLLC
A Corporate Law Firm
LAnthony@AnthonyPLLC.com

Securities attorney Laura Anthony and her experienced legal team provide ongoing corporate counsel to small and mid-size private companies, OTC and exchange traded public companies as well as private companies going public on the Nasdaq, NYSE American or over-the-counter market, such as the OTCQB and OTCQX. For more than two decades Anthony L.G., PLLC has served clients providing fast, personalized, cutting-edge legal service. The firm’s reputation and relationships provide invaluable resources to clients including introductions to investment bankers, broker-dealers, institutional investors and other strategic alliances. The firm’s focus includes, but is not limited to, compliance with the Securities Act of 1933 offer sale and registration requirements, including private placement transactions under Regulation D and Regulation S and PIPE Transactions, securities token offerings and initial coin offerings, Regulation A/A+ offerings, as well as registration statements on Forms S-1, S-3, S-8 and merger registrations on Form S-4; compliance with the Securities Exchange Act of 1934, including registration on Form 10, reporting on Forms 10-Q, 10-K and 8-K, and 14C Information and 14A Proxy Statements; all forms of going public transactions; mergers and acquisitions including both reverse mergers and forward mergers; applications to and compliance with the corporate governance requirements of securities exchanges including Nasdaq and NYSE American; general corporate; and general contract and business transactions. Ms. Anthony and her firm represent both target and acquiring companies in merger and acquisition transactions, including the preparation of transaction documents such as merger agreements, share exchange agreements, stock purchase agreements, asset purchase agreements and reorganization agreements. The ALG legal team assists Pubcos in complying with the requirements of federal and state securities laws and SROs such as FINRA for 15c2-11 applications, corporate name changes, reverse and forward splits and changes of domicile. Ms. Anthony is also the author of SecuritiesLawBlog.com, the small-cap and middle market’s top source for industry news, and the producer and host of LawCast.com, Corporate Finance in Focus. In addition to many other major metropolitan areas, the firm currently represents clients in New York, Los Angeles, Miami, Boca Raton, West Palm Beach, Atlanta, Phoenix, Scottsdale, Charlotte, Cincinnati, Cleveland, Washington, D.C., Denver, Tampa, Detroit and Dallas.

Ms. Anthony is a member of various professional organizations including the Crowdfunding Professional Association (CfPA), Palm Beach County Bar Association, the Florida Bar Association, the American Bar Association and the ABA committees on Federal Securities Regulations and Private Equity and Venture Capital. She is a supporter of several community charities including siting on the board of directors of the American Red Cross for Palm Beach and Martin Counties, and providing financial support to the Susan Komen Foundation, Opportunity, Inc., New Hope Charities, the Society of the Four Arts, the Norton Museum of Art, Palm Beach County Zoo Society, the Kravis Center for the Performing Arts and several others. She is also a financial and hands-on supporter of Palm Beach Day Academy, one of Palm Beach’s oldest and most respected educational institutions. She currently resides in Palm Beach with her husband and daughter.

Ms. Anthony is an honors graduate from Florida State University College of Law and has been practicing law since 1993.

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NASDAQ Issues Report Advocating for The U.S. Public Markets

Before SEC Commissioner Michael Piwowar’s May 16, 2017, speech at the SEC-NYU Dialogue on Securities Market Regulation regarding the U.S. IPO Market (see summary HERE), and SEC Chair Jay Clayton’s July 12, 2017, speech to the Economic Club of New York (see summary HERE), the topic of the U.S. IPO market had already gained significant market attention. Earlier this year, NASDAQ issued a paper titled “The Promise of Market Reform: Reigniting American’s Economic Engine” with its views and position on how to revitalize the U.S. equities and IPO market (the “NASDAQ Paper”). This blog summarizes the NASDAQ Paper.

The NASDAQ Paper begins with a statement by Adena Friedman, President and CEO of NASDAQ. The statement begins with a decidedly positive outlook, noting that “The U.S. equities markets exist to facilitate job creation and wealth creation for millions of people, ultimately driving economic growth for our country.” Ms. Friedman adds that “[E]xceptional market returns in recent years reflect the growing strength of the U.S. and global economy and continued confidence in the health of U.S. markets.”

However, on the other side she points out that there are structural issues that need to be addressed, noting that markets have become more complex and costly for companies that are already public or considering going public. The problem runs deep. Again quoting Ms. Friedman: “[I]f the volume of IPOs continues to fall and more companies choose to stay or go private, job creation and economic growth could suffer, and income inequality could worsen as average investors become increasingly shut out of the most attractive offerings.” In that regard, NASDAQ has issued its Paper setting out reforms that it advocates for to improve interest in the U.S. public markets.

The NASDAQ Paper

Following an Executive Summary, the NASDAQ Paper is broken down into three sections: (i) Reconstructing the Regulatory Framework; (ii) Modernizing Market Structure; and (iii) Promoting Long-Termism.

Executive Summary

Like Ms. Friedman’s statement, the executive summary at the beginning of the NASDAQ Paper touts the importance of robust U.S. public markets to our economy, a message I have reiterated in many blogs over the years. Citing the SEC’s own statistics, the NASDAQ Paper points out that since 1970, 92% of job creation has come from public companies and that the vast majority of Americans are invested in public companies either directly or indirectly through pension funds, mutual funds and other retirement accounts. Furthermore, index funds have gained in popularity, but for an index strategy to work, there needs to be a healthy selection of public companies to comprise these indexes and provide diversification and profitability.

Although many pension funds invest in private equity firms that in turn invest in private companies, these private investments are illiquid and hard to value. Accordingly, public markets remain and will continue to remain the investment of choice for U.S. retirement accounts.

However, with the necessary transparency of public companies comes greater obligations and compliance costs. Over the years the U.S. has continued to add layers of regulation such that the burdens of being public can outweigh the benefits. I note this is more so for larger companies that do not qualify as emerging growth or smaller public companies and are required to comply with even greater levels of disclosure, including compliance with Sarbanes-Oxley Act Section 404. For more on public company disclosure requirements, see HERE and HERE. A summary of the ongoing SEC Disclosure Effectiveness Initiative is at the end of this blog.

The NASDAQ Paper cites many reasons for the slowdown in the U.S. IPO market, including: (i) shareholder activists; (ii) frivolous shareholder lawsuits; (iii) pressure to prioritize short-term returns over long-term strategic growth; (iv) burdensome costs and headaches of the proxy process; and (v) irrelevant disclosure obligations. Moreover, the better companies have no problem finding private equity and often choose that route.

In addition to the direct causes for the slowdown, NASDAQ has three main concerns over the U.S. public markets, including: (i) complex regulations disincentivize market participation; (ii) a one-size-fits-all market structure does not work for small and emerging growth companies; and (iii) a culture in the investment community and media that prioritizes short-term return over long-term growth. NASDAQ offers its view and suggested solutions for each of these issues.

Reconstructing the Regulatory Framework

Although regulations and oversight are obviously a necessity, regulations which were put into place as a result of the financial crisis now need to be reviewed and particularly in relation to the burdens they impose on public companies and those considering entering the public markets. Moreover, years of layering of regulations, without a top-down view, has created unnecessary complexities for companies.

NASDAQ points to the proxy process as an area needing crucial regulatory reform. Although shareholders should have an ability to raise legitimate concerns, the proxy process is being used for nuisance value at a significant cost to companies. NASDAQ suggests that the SEC:

(i) Raise the minimum ownership amount and holding period to ensure that proposals have meaningful shareholder backing. Currently, the SEC rules allow a shareholder holding $2,000 or more of company stock for a period of one year or longer, to include issues in a company proxy statement, regardless of materiality, subject to the company’s ability to seek SEC no-action letter redress, which of course requires time and expense. For more on this process, see HERE. NASDAQ suggests increasing the minimum ownership to at least 1% of the company’s outstanding stock and increasing the minimum holding period to 3 years.

(ii) Update the SEC process for removing repetitive, unsuccessful proposals from proxies. NASDAQ backs the Financial Choice Act proposal, which would significantly increase the level of shareholder support a rejected proposal would need to have to be reintroduced at a future meeting. Moreover, the topics of shareholder proposals should be better identified to ensure that only matters that are meaningful to the shareholders are considered at annual meetings.

(iii) Create transparency and fairness in the proxy advisory industry. Due to the large number of proxies to consider each year, institutional investors rely on proxy advisory firms, which are unregulated and “rife with opacity, lack of accountability and conflicts of interest.” NASDAQ suggests that voting is often at the whim of these advisory firms, with no obligation to provide information related to their analysis, financial interests, or stock ownership (including long or short positions).

NASDAQ also advocates changes in corporate disclosure requirements. Although transparency is critically important, companies should have the flexibility to provide full disclosure that is shareholder-friendly (readable) and less burdensome on companies. I’ve included more information on the SEC’s Disclosure Effectiveness Initiative at the end of this blog. NASDAQ has strong views in this regard, and suggests the following changes:

(i) Offer flexibility on quarterly reporting. NASDAQ suggests allowing companies to file semiannual reports with material interim updates via press releases and Form 8-K’s.

(ii) Streamline quarterly reporting obligations for small and medium growth companies. NASDAQ suggests that “if companies report all key financial and business details in quarterly press releases, we should consider eliminating the archaic 10-Q form, which is duplicative and bureaucratic. We should also study options that allow for greater flexibility in reporting schedules, so that as long as companies are transparent with shareholders, they have the flexibility to report on a less-rigid structure. This would also promote our third goal of promoting long-termism.” In addition, NASDAQ questions the usefulness of XBRL, noting that many analysts use their own technology in any event.

(iii) Expand classifications for disclosure relief. In particular, NASDAQ suggests expanding the class of companies that will qualify as a “smaller reporting company” and “emerging growth company” to take advantage of the scaled-down disclosure requirements available to these companies.

(iv) Expand the ability to “test the waters” for emerging growth companies. For more information on test-the-waters provisions, see HERE and HERE.

(v) Allow all companies to file confidential draft registration statements. Since the time that NASDAQ issued its Paper, the SEC has, in fact, implemented this change. See HERE for more information.

(vi) Increase the definition of emerging growth company from the current $1,070,000,000 to $1.5 billion and eliminate the five-year phase-out period,

(vii) Harmonize the definitions and obligations of smaller reporting company with non-accelerated filer and emerging growth company. For more on the distinctions between these categories, see HERE. Also, for a summary of the current proposed changes to the definition of a smaller reporting company, see HERE.

(viii) Allow all companies to use shelf registrations regardless of size.

(ix) Roll back politically motivated disclosure requirements such that disclosures are only required that help investors evaluate a company’s financial performance and economic prospects. Examples of politically motivated disclosures include the conflict mineral disclosures and executive pay ratio.

(x) The SEC should complete its Disclosure Effectiveness Initiative to strip out unnecessary requirements and simplify the process all around.

NASDAQ suggests the need for comprehensive litigation reform. There has been a record rate of securities class actions, many of which are dismissed and are clearly filed for nuisance value. In fact, NASDAQ suggests, and I agree, that class actions have become a method of negotiation and ordinary standard business practice. However, the cost to companies to defend frivolous lawsuits is huge, as is the deterrent to entering the public arena. NASDAQ has several suggestions in this regard, including, for example: (i) ease the standards for imposing sanction on lawyers for bringing frivolous lawsuits; (ii) tighten the requirements for granting class certification; (iii) allow interlocutory appeals of decisions; (iv) require disclosure of third-party financing of the litigation; (v) limit plaintiffs’ legal fees; (vi) allow a plaintiff to amend its complaint only once; (vii) further codify the standards for pleading with respect to scienter and loss causation, and clarify the exclusive nature of federal jurisdiction over securities claims; (viii) increase the burden of proof; (ix) require the loser to pay the legal fees of the winner and require plaintiffs to post a bond to ensure this right; and (x) allow enforceable arbitration provisions for shareholder matters.

NASDAQ also supports tax reform and, in particular, is supportive of the current administration’s efforts to reduce corporate tax rates for U.S. companies as well as territorial taxation for foreign corporate earnings. The exchange also advocates for lower individual taxes specifically related to gains from investments in public companies. In particular, NASDAQ suggests:

(i) Exploring a system that would create a tax structure for individual investors that ties a low level of taxes on investments to the overall value of the account, rather than a higher dividends and capital gains tax on earnings within the account. Sweden introduced such a system in 2012, and since that time approximately 16% of the total Swedish population has taken advantage of this system and the number of Swedish IPO’s has doubled.

(ii) Expand the tax exemption on the sale of small business stock in the secondary market. The tax code currently has a narrow exemption that only benefits venture capitalists and private equity investors.

(iii) Enact a 100% dividends received deduction for holders of corporate stock, avoiding double taxation of corporate profits.

(iv) Eliminate the net investment income tax, which was enacted in 2013 and invokes a 3.8% surcharge on dividends and capital gains.

(v) Exclude dividends and capital gains from income for purposes of determining the phase-out of itemized deductions.

Modernizing Market Structure

The NASDAQ Paper states the obvious: the current market structure needs to be updated for technological advances. A particular problem is the illiquidity faced by small public companies, a problem which NASDAQ believes can be addressed through market reforms leveraging new technology. NASDAQ is particularly critical of Regulation NMS. NASDAQ specifically recommends:

(i) Strengthen markets for smaller companies. Small and medium companies face liquidity issues that also result in market volatility. When a buy or sell order is placed on a stock with low trading volume, it can create dramatic price movements which do not reflect underlying value. NASDSAQ suggests that the problem stems from fragmentation with trading spread among too many trading venues. Interestingly, 15 years ago, 90% of trading was on a single exchange, but today there are 12 exchanges and 50 or more trading venues. Although most OTC Market securities would not qualify for an exchange listing, even if they wanted to, NASDAQ cites the existence of this and other alternative trading systems as also causing a spread-out of liquidity. NASDAQ believes concentrating that disaggregated liquidity onto a single exchange, with limited exceptions, will allow investors to better source liquidity.

I can’t say I agree with NASDAQ on this one. The OTC Markets provides a much-needed source of capital raising and secondary market trading for small and emerging growth companies, where no other option exists. I am, and continue to be, an avid supporter of the OTC Markets and advocate for its recognition as a venture exchange. A legislatively supported venture market would improve the system dramatically. See my article HERE. I also note that the OTC Markets has a platform in place and a desire to be such a venture market. However, as of today, it has failed to receive the legislative support necessary to make the effective changes needed to the system.

(ii) Give issuers a choice to consolidate liquidity and improve trading quality. NASDAQ advocates reducing Unlisted Trading Privileges (UTP) but at the same time creating an exchange that small and medium companies can trade on. However, from my viewpoint such a route would reduce the number of publicly traded securities, which of course would increase supply and demand for traded securities, but would leave many small and emerging growth companies with no access to public capital or secondary markets.

NASDAQ is careful not to suggest eliminating off-exchange (OTC Markets) trading, noting that “[O]ff-exchange trading represents 38.4% of small and medium growth company trading volume today. While there are great benefits to consolidating on-exchange trading, there is also important value provided by off-exchange trading that merit consideration, especially block trades and price-improved trades. The network of off-exchange brokers also supports systemic resiliency for the trading of these securities.We want to work with the industry towards constructive solutions that balance on- and off- exchange activities.” However, it continues arguing in favor of consolidation. In reading the Paper, I wonder if NASDAQ is ultimately suggesting that OTC Markets be turned into a national exchange and run by NASDAQ itself.

(iii) Deploy intelligent tick sizes for small and medium growth companies. NASDAQ cites research that a one-size-fits-all approach to tick size is suboptimal for many (particularly small and medium growth) companies, which should trade in a suitable tick regime determined by their listing exchange. NASDAQ believes trading could be on sub-penny, penny, nickel or dime increments. For information on the SEC tick size pilot program, see HERE.

(iv) Cultivate innovative market-level solutions that improve the trading of small and medium growth companies. NASDAQ advocates eliminating or greatly reducing Regulation NMS. Regulation NMS (National Market System) is a set of rules and regulations governing fairness in price execution, quote displays and access to market data. NASDAQ believes that these rules are restrictive to the market as a whole and negatively impact the liquidity of lower-priced securities.

(v) Implement an intelligent rebate/fee structure that promotes liquidity and avoids market distortion. In this recommendation, NASDAQ is suggesting plans for incentivizing market making in less liquid stocks.

(vi) Ensure fair and reasonable pricing for participants in the context of limiting exchange competition. Of course, if competition is eliminated, there must be rules in place to ensure that “the house” doesn’t win all! (My words, not NASDAQ’s.)

Promoting Long-termism

Companies are under increasing pressure to realize short-term profits for shareholders to the detriment of sustainable long-term growth. NASDAQ particularly points the blame finger at activist investors. Furthermore, unlike many investor groups, NASDAQ supports dual class structures which allow the entrepreneurs and internal management to invest in a motivating fashion along with external investors. NASDAQ’s specific recommendations include:

(i) Address concerns regarding activist investors. As shareholder activism has grown, its definition and purpose have become more muddled. Activism is a term used as an investment strategy that may or may not have any benefit to the company and its other shareholders. In addition to a need for dialogue and research in this area, NASDAQ advocates for further transparency and disclosure around arrangements and motivations by activists, including conflicts of interest.

(ii) Equalize short interest transparency. Short interest disclosures should tie in with Section 13 long position disclosure requirements. The NASDAQ Paper hits the nail on the head: “the asymmetry of information between long investors and those with short positions deprives companies of insights into trading activity and limits their ability to engage with investors and it deprives investors of information necessary to make meaningful investment decisions.”

(iii) Continue to support a dual class structure. Each public company, and their entrepreneurs and innovators, should have the flexibility to determine the best class structure for that company.

(iv) Encourage, rather than mandate, ESG disclosure. ESG stands for environmental, social and governance disclosures.

Further Reading on the SEC Disclosure Effectiveness Initiative

I have been keeping an ongoing summary of the SEC ongoing Disclosure Effectiveness Initiative. The following is a recap of such initiative and proposed and actual changes. Although the rate of changes has slowed down since the election and change in SEC control regime, I expect it to pick up again. In an upcoming blog, I will be writing about the SEC’s announced Regulatory Flexibility Agenda. The Agenda lists regulations the SEC expects to propose or finalize in the next 12 months. This year’s Agenda only includes 33 rules (last year’s contained 62), at least 8 of which are related to disclosure requirements.

On March 1, 2017, the SEC passed final rule amendments to Item 601 of Regulation S-K to require hyperlinks to exhibits in filings made with the SEC. The amendments require any company filing registration statements or reports with the SEC to include a hyperlink to all exhibits listed on the exhibit list. In addition, because ASCII cannot support hyperlinks, the amendment also requires that all exhibits be filed in HTML format. See my blog HERE on the Item 601 rule changes.

On August 25, 2016, the SEC requested public comment on possible changes to the disclosure requirements in Subpart 400 of Regulation S-K. Subpart 400 encompasses disclosures related to management, certain security holders and corporate governance. See my blog on the request for comment HERE.

On July 13, 2016, the SEC issued a proposed rule change on Regulation S-K and Regulation S-X to amend disclosures that are redundant, duplicative, overlapping, outdated or superseded (S-K and S-X Amendments). See my blog on the proposed rule change HERE. This proposal is slated for action in this year’s SEC regulatory agenda.

That proposed rule change and request for comments followed the concept release and request for public comment on sweeping changes to certain business and financial disclosure requirements issued on April 15, 2016. See my two-part blog on the S-K Concept Release HERE and HERE.

As part of the same initiative, on June 27, 2016, the SEC issued proposed amendments to the definition of “Small Reporting Company” (see my blog HERE). The SEC also previously issued a release related to disclosure requirements for entities other than the reporting company itself, including subsidiaries, acquired businesses, issuers of guaranteed securities and affiliates. See my blog HERE. Both of these items are slated for action in this year’s SEC regulatory agenda.

As part of the ongoing Disclosure Effectiveness Initiative, in September 2015 the SEC Advisory Committee on Small and Emerging Companies met and finalized its recommendation to the SEC regarding changes to the disclosure requirements for smaller publicly traded companies. For more information on that topic and for a discussion of the Reporting Requirements in general, see my blog HERE.

In March 2015 the American Bar Association submitted its second comment letter to the SEC making recommendations for changes to Regulation S-K. For more information on that topic, see my blog HERE.

In early December 2015 the FAST Act was passed into law. The FAST Act requires the SEC to adopt or amend rules to: (i) allow issuers to include a summary page to Form 10-K; and (ii) scale or eliminate duplicative, antiquated or unnecessary requirements for emerging growth companies, accelerated filers, smaller reporting companies and other smaller issuers in Regulation S-K. The current Regulation S-K and S-X Amendments are part of this initiative. In addition, the SEC is required to conduct a study within one year on all Regulation S-K disclosure requirements to determine how best to amend and modernize the rules to reduce costs and burdens while still providing all material information. See my blog HERE. These items are all included in this year’s SEC regulatory agenda.

The Author

Laura Anthony, Esq.
Founding Partner
Legal & Compliance, LLC
Corporate, Securities and Going Public Attorneys
330 Clematis Street, Suite 217
West Palm Beach, FL 33401
Phone: 800-341-2684 – 561-514-0936
Fax: 561-514-0832
LAnthony@LegalAndCompliance.com
www.LegalAndCompliance.com
www.LawCast.com

Securities attorney Laura Anthony and her experienced legal team provides ongoing corporate counsel to small and mid-size private companies, OTC and exchange traded issuers as well as private companies going public on the NASDAQ, NYSE MKT or over-the-counter market, such as the OTCQB and OTCQX. For nearly two decades Legal & Compliance, LLC has served clients providing fast, personalized, cutting-edge legal service. The firm’s reputation and relationships provide invaluable resources to clients including introductions to investment bankers, broker dealers, institutional investors and other strategic alliances. The firm’s focus includes, but is not limited to, compliance with the Securities Act of 1933 offer sale and registration requirements, including private placement transactions under Regulation D and Regulation S and PIPE Transactions as well as registration statements on Forms S-1, S-8 and S-4; compliance with the reporting requirements of the Securities Exchange Act of 1934, including registration on Form 10, reporting on Forms 10-Q, 10-K and 8-K, and 14C Information and 14A Proxy Statements; Regulation A/A+ offerings; all forms of going public transactions; mergers and acquisitions including both reverse mergers and forward mergers, ; applications to and compliance with the corporate governance requirements of securities exchanges including NASDAQ and NYSE MKT; crowdfunding; corporate; and general contract and business transactions. Moreover, Ms. Anthony and her firm represents both target and acquiring companies in reverse mergers and forward mergers, including the preparation of transaction documents such as merger agreements, share exchange agreements, stock purchase agreements, asset purchase agreements and reorganization agreements. Ms. Anthony’s legal team prepares the necessary documentation and assists in completing the requirements of federal and state securities laws and SROs such as FINRA and DTC for 15c2-11 applications, corporate name changes, reverse and forward splits and changes of domicile. Ms. Anthony is also the author of SecuritiesLawBlog.com, the OTC Market’s top source for industry news, and the producer and host of LawCast.com, the securities law network. In addition to many other major metropolitan areas, the firm currently represents clients in New York, Las Vegas, Los Angeles, Miami, Boca Raton, West Palm Beach, Atlanta, Phoenix, Scottsdale, Charlotte, Cincinnati, Cleveland, Washington, D.C., Denver, Tampa, Detroit and Dallas.

Contact Legal & Compliance LLC. Technical inquiries are always encouraged.

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Legal & Compliance, LLC makes this general information available for educational purposes only. The information is general in nature and does not constitute legal advice. Furthermore, the use of this information, and the sending or receipt of this information, does not create or constitute an attorney-client relationship between us. Therefore, your communication with us via this information in any form will not be considered as privileged or confidential.

This information is not intended to be advertising, and Legal & Compliance, LLC does not desire to represent anyone desiring representation based upon viewing this information in a jurisdiction where this information fails to comply with all laws and ethical rules of that jurisdiction. This information may only be reproduced in its entirety (without modification) for the individual reader’s personal and/or educational use and must include this notice.

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Posted by Securities Attorney Laura Anthony | April 26, 2016 Tags: listing requirements for NASDAQ, NASADAQ Listing Application, NASDAQ, NASDAQ Capital Market, NASDAQ Listing Requirements, NASDAQ Requirements, NASDAQ Small Cap Listing Requirements, OTC to NASDAQ, The NASDAQ Global Market, The NASDAQ Global Select Market, The NASDAQ Stock Market

This blog is the first in a two-part series explaining the listing requirements for the two small-cap national exchanges, NASDAQ and the NYSE MKT, beginning with NASDAQ. In addition to often being asked about the listing requirements on NASDAQ and the NYSE MKT, I am asked about the benefits of trading on such an exchange. Accordingly, at the end of this blog I have included a discussion on such benefits.

The NASDAQ Stock Market

The NASDAQ Stock Market currently has three tiers of listed companies: (1) The NASDAQ Global Select Market, (2) The NASDAQ Global Market and (3) The NASDAQ Capital Market. Each tier has increasingly higher listing standards, with the NASDAQ Global Select Market having the highest initial listing standards and the NASDAQ Capital Markets being the entry-level tier for most micro- and small-cap issuers. Keeping in line with the focus of my blogs and practice, this blog is focused on the NASDAQ Capital Market tier.

A company seeking to list securities on NASDAQ must meet minimum listing requirements, including specified financial, liquidity and corporate governance criteria. NASDAQ has broad discretion over the listing process and may deny an application, even if the technical requirements are met, if it believes such denial is necessary to protect investors and the public interest.

Once listed, a company must meet continued listing standards. In order to apply for listing on NASDAQ, a company must complete and submit to NASDAQ a listing application including specified documents and information.

The application process generally takes four to six weeks. Upon submittal of the application, a NASDAQ analyst will be assigned to the file as a lead interface with the company. The company will receive an initial comment letter within two to three weeks, and the comment and review process will continue until the application is either approved or denied. Like a filing with the SEC, a well prepared NASDAQ application will result in fewer comments and a smoother, quicker process. Generally, a company’s securities counsel takes the lead and is the point person in preparing the application and communicating with NASDAQ.

Also similar to an SEC review process, NASDAQ will review publicly available information about a company, including but not limited to SEC filings, a company’s website, management communications and speeches, and press releases. For the most part, the back-and-forth process does not require a formal protocol, and communications will include e-mail correspondence and phone calls.

Listing Criteria for NASDAQ

To list its securities on NASDAQ, a company is required to meet: (a) certain initial quantitative and qualitative requirements and (b) certain continuing quantitative and qualitative requirements. The quantitative listing thresholds for initial listing are generally higher than for continued listing, thus helping to ensure that companies have reached a sufficient level of maturity prior to listing. NASDAQ also requires listed companies to meet stringent corporate governance standards.

Prior to submitting a full listing application, a company can seek a preliminary listing eligibility review. The Listing Qualifications staff will review the company’s public filings to determine if it satisfies the numerical listing requirements. The staff will also consider compliance with the corporate governance requirements of Marketplace Rules (“Rules”).

Once the preliminary review is completed, the Listing Qualifications staff will determine whether the company satisfies the numerical listing criteria and whether any corporate governance or regulatory issues raised by the company would preclude listing approval. Any final approval, however, will require the company to submit a formal listing application, which application will undergo an extensive review by NASDAQ Listing Qualifications staff. Moreover, any final approval will require satisfactory compliance with certain other qualitative reviews, including a review of the regulatory history of the company’s officers, directors and significant shareholders.

The following information sets forth the requirements to list on the NASDAQ Capital Market, the lowest of the three NASDAQ market tiers, as well as the Corporate Governance Requirements required for such tiers…

Click Here To Download Whitepaper- NASDAQ Listing Requirements

The Author

Laura Anthony, Esq.
Founding Partner
Legal & Compliance, LLC
Corporate, Securities and Going Public Attorneys
LAnthony@LegalAndCompliance.com

Securities attorney Laura Anthony and her experienced legal team provides ongoing corporate counsel to small and mid-size private companies, OTC and exchange traded issuers as well as private companies going public on the NASDAQ, NYSE MKT or over-the-counter market, such as the OTCQB and OTCQX. For nearly two decades Legal & Compliance, LLC has served clients providing fast, personalized, cutting-edge legal service. The firm’s reputation and relationships provide invaluable resources to clients including introductions to investment bankers, broker dealers, institutional investors and other strategic alliances. The firm’s focus includes, but is not limited to, compliance with the Securities Act of 1933 offer sale and registration requirements, including private placement transactions under Regulation D and Regulation S and PIPE Transactions as well as registration statements on Forms S-1, S-8 and S-4; compliance with the reporting requirements of the Securities Exchange Act of 1934, including registration on Form 10, reporting on Forms 10-Q, 10-K and 8-K, and 14C Information and 14A Proxy Statements; Regulation A/A+ offerings; all forms of going public transactions; mergers and acquisitions including both reverse mergers and forward mergers, ; applications to and compliance with the corporate governance requirements of securities exchanges includingNASDAQ and NYSE MKT; crowdfunding; corporate; and general contract and business transactions. Moreover, Ms. Anthony and her firm represents both target and acquiring companies in reverse mergers and forward mergers, including the preparation of transaction documents such as merger agreements, share exchange agreements, stock purchase agreements, asset purchase agreements and reorganization agreements. Ms. Anthony’s legal team prepares the necessary documentation and assists in completing the requirements of federal and state securities laws and SROs such as FINRA and DTC for 15c2-11 applications, corporate name changes, reverse and forward splits and changes of domicile. Ms. Anthony is also the author of SecuritiesLawBlog.com, the OTC Market’s top source for industry news, and the producer and host of LawCast.com, the securities law network. In addition to many other major metropolitan areas, the firm currently represents clients in New York, Las Vegas, Los Angeles, Miami, Boca Raton, West Palm Beach, Atlanta, Phoenix, Scottsdale, Charlotte, Cincinnati, Cleveland, Washington, D.C., Denver, Tampa, Detroit and Dallas.

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