[Federal Register Volume 75, Number 203 (Thursday, October 21, 2010)]
[Notices]
[Pages 65044-65046]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2010-26474]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-63110; File No. SR-NASDAQ-2010-107]
Self-Regulatory Organizations; The NASDAQ Stock Market LLC; Order
Granting Approval to a Proposed Rule Change To Modify the Eligibility
Criteria for the Second Compliance Period for a Bid Price Deficiency on
the Nasdaq Capital Market
October 14, 2010.
I. Introduction
On August 25, 2010, The NASDAQ Stock Market LLC (``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
modify the eligibility criteria in order for a listed company to
qualify for the second compliance period for a bid price deficiency on
the Nasdaq Capital Market. The proposed rule change was published for
comment in the Federal Register on September 2, 2010.\3\ The Commission
received no comment letters on the proposal. This order approves the
proposed rule change.
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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. 62782 (August 27,
2010), 75 FR 53994 (``Notice'').
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II. Description of the Proposal
Nasdaq is proposing, in order for a company to receive a second
compliance period for a bid price deficiency on the Nasdaq Capital
Market (``Capital Market''), to modify the eligibility criteria
concerning market value of publicly held shares. Under the current
Nasdaq rules, when a company has a closing bid price below $1 for 30
consecutive days, it is deemed deficient under Nasdaq's bid price
continued listing standard, and promptly receives written notice that
it has 180 calendar days from such notification to regain
compliance.\4\ Compliance can be achieved by maintaining a minimum $1
closing bid price for ten consecutive days. At the expiration of the
180-day compliance period, a company can receive an additional 180-day
compliance period,\5\ provided it is either already listed on the
Capital Market or transfers to that market and satisfies all of the
Capital Market's
[[Page 65045]]
initial listing criteria, except for bid price.\6\
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\4\ See Nasdaq Rule 5810(c)(3)(A).
\5\ In its filing, Nasdaq refers to the 180-day compliance
period as a ``grace'' period.
\6\ See Nasdaq Rule 5810(c)(3)(A)(i)-(ii).
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Nasdaq has observed that many companies fail to qualify for the
second compliance period because they do not meet the market value of
publicly held shares requirement for initial listing on the Capital
Market. Nasdaq therefore is proposing to ease the requirements for the
second compliance period on the Capital Market by allowing a company to
qualify if it satisfies the lower continued listing requirement for
market value of publicly held shares, thereby enabling more companies
to be eligible for the second compliance period.\7\ The company would
still need to meet all of the other initial listing criteria for
Capital Market other than bid price.\8\
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\7\ The initial listing requirements for market value of
publicly held shares for common stock on the Capital Market range
from $5 million to $15 million, depending on the listing standard
under which the company qualifies; the continued listing requirement
is $1 million. See Nasdaq Rules 5505(b) and 5555(a)(4).
\8\ The initial listing standards for the Capital Market are set
forth in Nasdaq Rule 5505 and include an equity standard, market
value of listed securities standard, and a net income standard. See
Nasdaq Rule 5505.
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Under the proposal, the company will need to notify Nasdaq of its
intent to cure the bid price deficiency. If a company does not indicate
its intent to cure the deficiency, or if it does not appear to Nasdaq
staff that it is possible for the company to cure the deficiency, the
company would not be eligible for the second compliance period under
the Capital Market rules. Under the proposal, a company listed on
Nasdaq's Global or Global Select Markets would be permitted to transfer
to the Capital Market if it meets the applicable market value of
publicly held shares requirement for continued listing and all other
applicable requirements for initial listing on the Capital Market
(except for the bid price requirement), and notifies Nasdaq of its
intent to cure the bid price deficiency.\9\ Once on the Capital Market,
the company would be eligible for the second compliance period on the
Capital Market, unless it does not appear to Nasdaq staff that it is
possible for the Company to cure the deficiency.\10\ In its filing,
Nasdaq noted that under the proposal, while certain companies that do
not currently qualify for the second compliance period could receive an
additional 180 days to comply with the bid price requirement, the
proposed rule change would not extend the overall maximum time of 360
days that is currently available to qualifying companies.
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\9\ As noted above, Nasdaq Global and Global Select companies
can currently receive the additional 180 day compliance period,
provided they meet all the applicable Capital Market initial
requirements and transfer to that market.
\10\ According to Nasdaq, once a company transfers to the
Capital Market, Nasdaq would assess whether it is possible for the
company to cure the deficiency. If not, the company would be denied
the second 180 day compliance period, and Nasdaq would commence
delisting proceedings for the company as a Capital Market listing.
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Nasdaq also proposes to remove language in Rule 5810(c)(3)
referencing the payment of fees by a company which transfers to the
Capital Market. The current language implies that there are fees
applicable to such a company. However, no fees are applicable under
Rule 5920(a) to such a company. Nasdaq is proposing to delete the
language, to remove any confusion, and has also proposed some other
clarifying and non-substantive changes to the rule.\11\
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\11\ See Notice, supra note 3.
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III. Discussion and Commission Findings
After careful consideration, the Commission finds that the proposed
rule change is consistent with the requirements of the Act and the
rules and regulations thereunder applicable to a national securities
exchange \12\ and, in particular, the requirements of Section 6 of the
Act.\13\ Specifically, the Commission finds that the proposed rule
change is consistent with Section 6(b)(5) of the Act,\14\ which
requires, among other things, that the rules of a national securities
exchange be designed to prevent fraudulent and manipulative acts and
practices, to promote just and equitable principles of trade, to foster
cooperation and coordination with persons engaged in regulating,
clearing, settling, processing information with respect to, and
facilitating transactions in securities, 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.
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\12\ In approving this proposed rule change the Commission has
considered the proposed rule's impact on efficiency, competition,
and capital formation. 15 U.S.C. 78c(f).
\13\ 15 U.S.C. 78f.
\14\ 15 U.S.C. 78f(b)(5).
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The development and enforcement of adequate standards governing the
initial and continued listing of securities on an exchange is an
activity of critical importance to financial markets and the investing
public. Listing standards serve as a means for an exchange to screen
issuers and to provide listed status only to bona fide companies that
have, or in the case of an initial public offering will have,
sufficient public float, investor base, and trading interest to provide
the depth and liquidity necessary to promote fair and orderly markets.
Adequate standards are especially important given the expectations of
investors regarding exchange trading and the imprimatur of listing on a
particular market. Once a security has been approved for initial
listing, maintenance criteria allow an exchange to monitor the status
and trading characteristics of that issue to ensure that it continues
to meet the exchange's standards for market depth and liquidity so that
fair and orderly markets can be maintained, and so that only companies
suitable for listing remain listed on a national securities exchange.
The Commission believes that the proposal to modify the eligibility
criteria for the second compliance period for a bid price deficiency on
the Capital Market is reasonable and consistent with the Act, and
furthers investor protection and the public interest. As stated above,
Nasdaq has observed that many companies fail to qualify for the second
compliance period because they do not meet the market value of publicly
held shares requirement for initial listing on the Capital Market. The
Commission notes that to qualify for a second compliance period, the
company would still need to meet all of the other initial listing
criteria for Capital Market other than bid price, as well as the
continued listing requirement for market value of publicly held
shares.\15\ These standards should help continue to ensure that only
companies that meet the minimum requirements for adequate depth and
liquidity remain listed for an extended period of time on the Capital
Market.
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\15\ See supra note 8.
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In addition, the company will need to notify Nasdaq of its intent
to cure the bid price deficiency. If a Capital Market company does not
indicate its intent to cure the deficiency, or if it does not appear to
Nasdaq staff that it is possible for the company to cure the
deficiency, the company would not be eligible for the second compliance
period. Similarly, a company listed on the Global or Global Select
Markets would be permitted to transfer to the Capital Market if it
meets the applicable market value of publicly held shares requirement
for continued listing and all other applicable requirements for initial
listing on the Capital Market (except for the bid price requirement)
and notifies Nasdaq of its intent to cure the bid price deficiency.
Once on the Capital Market, the company would be eligible for the
second compliance
[[Page 65046]]
period on the Capital Market, unless it does not appear to Nasdaq staff
that it is possible for the Company to cure the deficiency.
The Commission believes that requiring a company to affirmatively
state its intent to cure the bid price deficiency and Nasdaq staff to
determine whether it is possible for the company to cure that
deficiency, provides further protections to investors, by helping to
ensure that only companies that are serious and capable of gaining
compliance with the Capital Market listing standards within the
timeframe provided qualify for the second compliance period. In this
regard, the Commission would expect a thorough review to ensure that it
is possible for the bid price deficiency to be cured at the end of the
second 180 day compliance period and, if not, would expect Nasdaq to
immediately commence delisting proceedings.
In approving the Nasdaq's proposal, the Commission recognizes that
certain companies that do not currently qualify for the second
compliance period could receive additional time to remain listed on a
public market. The proposal, however, does not extend the overall
maximum time of 360 days that a company may remain listed before
delisting proceedings will commence. Moreover, the proposal eliminates
the automatic nature of the second 180 day bid price compliance period
that exists under the current rules. Further, notwithstanding the
change in eligibility criteria for a second compliance period, the
Commission expects Nasdaq to monitor companies closely that are out of
compliance and use its authority to delist issuers in a prompt,
efficient, and fair manner where necessary and appropriate, in
accordance with Nasdaq Rule 5100, including where there are public
interest or other concerns such as low price or market value, that make
continued listing unwarranted.
Finally, the Commission finds that Nasdaq's proposal to remove
language in Rule 5810(c)(3) will reduce confusion regarding the
application of the rule by clarifying that there are no fees applicable
to a company which transfer to the Capital Market. The additional
changes proposed by Nasdaq to the text of Rule 5810(c)(3)(A)(i)-(ii)
conform the rule language and format of the two paragraphs and clarify
that Nasdaq will assess a company for compliance with applicable
listing requirements based on the company's most recent public filings
and market information. The Commission believes that these changes
either clarify the rule or are non-substantive.
IV. Conclusion
It is therefore ordered, pursuant to Section 19(b)(2) of the
Act,\16\ that the proposed rule change (SR-NASDAQ-2010-107), be, and
hereby is, approved.
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\16\ 15 U.S.C. 78s(b)(2).
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\17\
Florence E. Harmon,
Deputy Secretary.
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\17\ 17 CFR 200.30-3(a)(12).
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[FR Doc. 2010-26474 Filed 10-20-10; 8:45 am]
BILLING CODE 8011-01-P