Global Financial Crisis Alert: NASDAQ Suspends Listing Requirements

10/20/2008

Last week, Nasdaq announced that it would temporarily suspend the application of the continued listing requirements related to bid price and market value of publicly held shares for listing on the Nasdaq Stock Market through January 16, 2009.¹ As part of this suspension, companies would not be cited for new bid price² or market value³ deficiencies relating to listed shares during the suspension period. Nasdaq intends that following the suspension, bid price and market value deficiencies will be determined using data starting on January 19, 2009 and that Nasdaq will monitor securities to determine if they regain compliance during the temporary suspension.⁴

Additionally, for companies already in a compliance period or in the hearing process for bid price or market value deficiencies, the time periods and processes will be suspended with respect to those requirements. Companies in compliance periods prior to the suspension, starting on January 19, 2009, will receive the balance of any pending compliance period in effect at the time of the suspension to regain compliance if not achieved during the suspension.⁵ Likewise, companies in the Hearings process prior to the suspension will resume that process on January 19, 2009 at the same stage they were in when the suspension went into effect.⁶

According to Nasdaq, the purpose of this suspension is to provide issuers of specific securities temporary relief from the bid price and market value requirements for listing on Nasdaq.⁷ Securities covered by the suspension include: common stock; preferred stock; secondary classes of common stock; shares or certificates of beneficial interest of trusts; limited partnership interests; American Depositary Receipts; and the equivalents of each.⁸ Nasdaq believes its actions will “permit companies to focus on running their businesses, rather than satisfying market-based requirements that are largely beyond their control in the current environment.” Further, it will “allow investors to buy shares of some of these lower-priced securities without fear that the company will receive a delisting notification or be delisted in the very near term.”⁹

Nasdaq announced that the financial crisis has caused the number of securities trading below $1 to increase dramatically, thus threatening their ability to maintain their Nasdaq listing requirements. For example, on September 30, 2007, there were 64 securities trading below $1 on Nasdaq. One year later, on September 30, 2008, that number had increased to 227 and by October 9, 2008 it increased to 344. As of October 9, 2008, there were an additional 300 Nasdaq-listed securities that were trading between $1 and $2.¹⁰ Nasdaq said that “the decline in general investor confidence has resulted in depressed pricing for companies that otherwise remain suitable for continued listing,” and that it believes that “during this time there was no fundamental change in the underlying business model or prospects for many of these companies.”¹¹ Further, current market conditions “make it difficult for companies to successfully implement a plan to regain compliance with the price or market value of publicly held share tests.”¹²

Nasdaq’s proposal, filed with the SEC, requests that the Commission waive the 30-day operative delay period required by Rule 19b-4.

Mintz Levin will continue to monitor Nasdaq’s suspension of these listing requirements. For the latest developments, visit Global Financial Crisis Central at mintz.com.

Endnotes

¹ See SR-NASDAQ-2008-082, here.

² According to Nasdaq’s rules, a security is considered deficient if it fails to achieve at least a $1 closing bid price for a period of 30 consecutive business days. Nasdaq’s requirements relating to bid price are set forth in Rules 4310(c)(4), 4320(e)(2)(E)(ii), 4450(a)(5), 4450(b)(4), and 4450(h)(3) and the related compliance periods are set forth in Rules 4310(c)(8)(D), 4320(e)(2)(E)(ii), and 4450(e)(2).

³ According to Nasdaq’s rules, a security is considered deficient if it fails to achieve the minimum market value of publicly held shares requirement for a period of 30 consecutive business days. Nasdaq’s requirements relating to market value of publicly held shares are set forth in Rules 4310(c)(8), 4320(e)(5), 4450(a)(2), 4450(b)(3), and 4450(h)(2) and the related compliance periods are set forth in Rules 4310(c)(8)(B) and 4450(e)(1).

⁴ See SR-NASDAQ-2008-082 at pp. 6-7.

⁵ Id. at p. 6 and n. 12.

⁶ Id. at pp. 6-7.

⁷ Id. at p. 4.

⁸ Id.

⁹ Id. at p. 7.

¹⁰ Id. at p. 5.

¹¹ Id.

¹² Id.

For assistance in this area, please contact one of the attorneys listed below or any member of your Mintz Levin client service team.

Mo Cowan
(617) 348-3003
WMCowan@mintz.com

Steve Ganis
(617) 348-1672
SGanis@mintz.com