Self-Regulatory Organizations; The NASDAQ Stock Market LLC; Order Approving Proposed Rule Change To Modify the Procedures Followed When a Listed Company Falls Below Certain Listing Requirements, 6072-6077 [2010-2500]
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Federal Register / Vol. 75, No. 24 / Friday, February 5, 2010 / Notices
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Dated: February 2, 2010.
Elizabeth M. Murphy,
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[FR Doc. 2010–2519 Filed 2–4–10; 8:45 am]
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[Release No. 34–61446; File No. SR–
NASDAQ–2009–077]
Self-Regulatory Organizations; The
NASDAQ Stock Market LLC; Order
Approving Proposed Rule Change To
Modify the Procedures Followed When
a Listed Company Falls Below Certain
Listing Requirements
January 29, 2010.
I. Introduction
On August 17, 2009, The NASDAQ
Stock Market LLC (‘‘Nasdaq’’ or
‘‘Exchange’’) 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 length of certain compliance
periods in Nasdaq’s continued listing
requirements and to modify the time
available for a company to provide a
plan to regain compliance with certain
listing requirements.3 The proposed rule
change was published for comment in
the Federal Register on September 8,
2009.4 The Commission received three
comment letters on the proposal.5 On
1 15
U.S.C. 78s(b)(1).
CFR 240.19b–4.
3 Nasdaq is also proposing to eliminate certain
abbreviations that are used inconsistently and
utilize defined terms, as appropriate, in Rules 5810
and 5840, and to remove authority in Rule
5810(c)(2)(C) that is duplicated in Rule
5810(c)(2)(B).
4 See Securities Exchange Act Release No. 46267
(September 2, 2009), 74 FR 46267 (‘‘Notice’’).
5 See letter from Barbara Roper, Director of
Investor Protection, Consumer Federation of
America, to Elizabeth M. Murphy, Secretary,
2 17
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December 28, 2009 the Exchange filed a
response to the comment letter.6 This
order approves the proposed rule
change.
II. Description of the Proposal
Price Related Criteria
Under Nasdaq’s current continued
listing requirements relating to market
value of listed securities, a company is
considered to be non-compliant after
falling below the standard for 10
consecutive trading days.7 Thereafter,
the company is provided 90 calendar
days to regain compliance with the
market value of listed securities
requirement. Further, Nasdaq’s current
continued listing rules relating to
market value of publicly held shares
provide that a company is deficient if it
is below the standard for 30 consecutive
trading days. Upon such failure, the
company is provided with 90 calendar
days to regain compliance.8
Nasdaq proposes to modify the length
of time required to trigger noncompliance with the market value of
listed securities requirement and to
modify the compliance periods
associated with the Exchange’s market
value of listed securities and market
value of publicly held shares continued
listing requirements. Nasdaq notes that,
under its bid price continued listing
standard, if a company’s security has a
closing bid price below $1.00 for 30
consecutive trading days, it no longer
meets the bid price requirement and is
automatically provided 180 calendar
days to regain compliance.9 Nasdaq
asserts that because compliance with
each of these rules is directly related to
the price of an issuer’s security, the
length of time to trigger noncompliance, and the amount of time
afforded as a compliance period, should
be consistent. As such, Nasdaq proposes
to lengthen the period that a company
would need to be below the market
Commission, dated September 28, 2009 (‘‘CFA
Comment Letter’’); letter from Alan F. Eisenberg,
Executive Vice President, Biotechnology Industry
Organization (‘‘BIO’’) to Elizabeth M. Murphy,
Secretary, Commission, dated September 29, 2009
(‘‘BIO Comment Letter’’); and letter from Jason S.
Frankl, Senior Managing Director, FTI Consulting
(‘‘FTI’’), to Elizabeth M. Murphy, Secretary,
Commission, dated October 5, 2009 (‘‘FTI Comment
Letter’’).
6 See letter from Arnold Golub, Vice President
and Associate General Counsel, Nasdaq, to
Elizabeth Murphy, Secretary, Commission, dated
December 28, 2009 (‘‘Nasdaq Response Letter’’).
7 Nasdaq Rule 5810(b)(3)(C). NASDAQ changed
the period to regain compliance with the market
value of listed securities requirement from 30 to 90
days in January of last year. Securities Exchange
Act Release No. 59291 (January 23, 2009), 74 FR
5197 (January 29, 2009) (SR–NASDAQ–2009–002).
8 Nasdaq Rule 5810(b)(3)(D).
9 Nasdaq Rule 5810(b)(3)(A).
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Federal Register / Vol. 75, No. 24 / Friday, February 5, 2010 / Notices
value of listed securities requirement
before being considered non-compliant
from 10 to 30 consecutive trading days.
Nasdaq also proposes to extend from 90
to 180 days the compliance period in
which companies that are noncompliant with the market value of
listed securities and market value of
publicly held shares requirements can
regain compliance.10 Nasdaq notes that
it believes that the existing 90-day time
frames do not provide sufficient time for
a company to regain compliance.
As revised, the maximum amount of
time that could be afforded to a
company that failed to meet the market
value of listed securities or market value
of publicly held shares requirements
would be 18 months.11
Requirements With Respect to
Compliance Plans
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Nasdaq also proposes to modify the
periods applicable in cases where a
company can provide Nasdaq staff with
a plan to regain compliance, such as
when a company fails to meet the
minimum requirements for
stockholders’ equity, the number of
publicly held shares, or the number of
shareholders.12 Currently, companies
are provided 15 calendar days to submit
a plan to regain compliance. Following
a review of the plan, staff can grant the
company a period of up to 105 calendar
days from the initial notification of noncompliance for the company to regain
compliance. Nasdaq proposes to
increase the number of calendar days a
company has to present its plan from 15
to 45, and to permit staff to grant up to
a 5-day extension of this period upon
good cause shown.13 Nasdaq asserts that
10 In its filing, Nasdaq noted that it could apply
its authority described in Nasdaq Rule 5100 to
delist a security during a compliance period if the
market value of listed securities or market value of
publicly held shares was so low that delisting is
necessary to maintain the quality of and public
confidence in the market, to prevent fraudulent and
manipulative acts and practices, and to protect
investors and the public interest.
11 A company could only receive an extension up
to this 18-month maximum length if: (i) It failed to
comply during the automatic 180-day compliance
period; (ii) the company appealed to a Hearings
Panel; and (iii) the Nasdaq Listing and Hearing
Review Council (‘‘Listing Council’’) determined to
call the matter for review, stay the company’s
delisting, and, after reviewing the company’s
compliance plan, provide the company with the
maximum 360-day period from the date of the Staff
Delisting Determination to regain compliance.
12 Nasdaq Rule 5810(c)(2) and IM–5810–2 provide
the procedures governing deficiencies for which a
company may submit a plan of compliance to
Nasdaq staff. Nasdaq has posted frequently asked
questions at https://www.nasdaq.com/about/faqslisting-information-questions.stm#continued, which
discuss the information a company should consider
in preparing its plan of compliance.
13 Nasdaq anticipates that this authority would be
used to address cases where the company could not
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15 days is often insufficient for a
company to formulate a meaningful
plan, particularly in the current market
and economic conditions. Further,
Nasdaq proposes to increase from 105 to
180 the number of calendar days for
which staff can grant an extension of
time to regain compliance from its
initial notification of non-compliance.14
Nasdaq states that this additional time
will better allow companies to
implement a plan to regain compliance.
As revised, the maximum amount of
time that could be afforded to a
company that failed to meet a listing
requirement that allows the submission
of a plan to regain compliance would be
18 months.15
Implementation
Nasdaq states that any company that
had not yet been notified that it was
non-compliant with the market value of
listed securities requirement upon
Commission approval of the proposed
rule change will not be notified until
they are below the requirement for 30
consecutive trading days.16 Any
company that has already been notified
that it was non-compliant with either
the market value of listed securities
requirement or the market value of
publicly held shares requirement and
that is still in the 90 calendar day
compliance period for such failure will
have their compliance period extended
until 180 calendar days from the date
they were originally notified of the
deficiency.17 No additional time will be
timely submit its plan due to events outside the
control of the company, such as when severe
weather interferes with the company’s ability to
provide the necessary information before the
deadline.
14 Nasdaq states that staff will determine whether
to allow the company additional time, and if so
how much time to allow, based on a review of the
company’s plan of compliance.
15 A company could only receive an extension up
to this 18-month maximum length if: (i) After
reviewing the company’s compliance plan, Nasdaq
staff granted the company the maximum 180-day
period to regain compliance; (ii) the company failed
to comply within the time allowed by staff and
appealed to a Hearings Panel; and (iii) the Nasdaq
Listing Council determined to call the matter for
review, stay the company’s delisting, and, after
reviewing the company’s compliance plan, provide
the company with the maximum 360-day period
from the date of the Staff Delisting Determination
to regain compliance.
16 For example, if a security is below the market
value of listed securities requirement for 7
consecutive trading days when the proposed rule is
approved, the company would not be notified that
it is deficient unless and until the security remains
below the requirement for another 23 consecutive
trading days, such that it remained below for a total
of 30 consecutive trading days.
17 For example, if a company had been notified
that its security was below either the market value
of listed securities or market value of publicly held
shares requirement 30 days before the proposed
rule is approved, such that it had 60 days remaining
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provided to a company that has received
a Staff Delisting Determination for
failure to meet either of those
requirements before the proposed rule
change is approved.18
With respect to the proposed changes
to the compliance plan process, if a
company has not yet submitted its plan
of compliance when the proposed rule
change is approved, the deadline to
submit that plan will be extended until
45 days from the date of staff’s
notification of the deficiency. If the
company has submitted its plan of
compliance when the proposed rule
change is approved, but staff has not yet
made a determination with respect to
whether to grant additional time, staff
will be permitted to grant the company
up to 180 days from staff’s notification
of the deficiency to regain compliance.
If the company has already received an
extension of time to regain compliance
from staff when the proposed rule
change is approved,19 at the end of that
exception staff could, based on a review
of the company at the time, grant
additional time for the company to
regain compliance, up to 180 days from
staff’s original notification of the
deficiency.20 No additional time will be
provided to a company that has already
received a Staff Delisting Determination
at the time the proposed rule change is
approved.21
III. Comment Summary
In its comment letter, CFA raises
several concerns regarding the
Exchange’s proposal.22 First, CFA
argues that the Exchange’s proposal will
lead to a proliferation of lengthy
automatic compliance periods for
companies that fall below listing
standards, potentially allowing large
numbers of non-compliant companies to
in its compliance period, that compliance period
would be extended by 90 days so that the company
would have 150 days remaining in the compliance
period.
18 For example, if a company had been notified
that its security was below either the market value
of listed securities or market value of publicly held
shares requirement 95 days before the proposed
rule is approved, the company would not receive
any additional time as a result of the proposed rule
change. Such companies would continue through
the Hearings and Appeals process, however, and
could receive additional time as provided for in
Nasdaq Rules 5815(c)(1)(A) and 5820(d)(1).
19 Nasdaq Rule 5810(c)(2)(B)(i).
20 The proposal to allow a company additional
time at the end of its extension based on staff’s
further review of the company is consistent with
Nasdaq’s current practice of potentially allowing a
company additional time if it was not initially
granted the full 105 days allowed by current Nasdaq
Rule 5810(c)(2)(B)(i).
21 Such companies would continue through the
Hearings and Appeals process, however, and could
receive additional time as provided for in Nasdaq
Rules 5815(c)(1)(A) and 5820(d)(1).
22 See CFA Comment Letter, supra note 5.
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Federal Register / Vol. 75, No. 24 / Friday, February 5, 2010 / Notices
remain listed for extended periods of
time with little or no oversight.23 In
response, the Exchange states that it
continuously monitors each listed
company for compliance with the listing
rules and determines whether any
public interest concerns exist that may
make continued listing inappropriate.24
In particular, the Exchange notes that
notwithstanding the automatic
compliance periods, Nasdaq staff has
the authority to apply additional and
more stringent criteria to shorten a
compliance period or delist a company
before the end of the compliance period
if it believes that the continued listing
of a company would be contrary to the
public interest.25
In addition, CFA notes that while
Nasdaq has stated that the proposed rule
change is intended to harmonize and
ensure consistency in the compliance
periods across its continued listing
rules, Nasdaq has chosen to apply its
least restrictive compliance period (i.e.,
its longest compliance period of 180
days).26 The CFA asserts that if
harmonization is needed, Nasdaq
should instead ‘‘harmonize up, not
down’’ and apply its shorter compliance
periods consistently across its rules.27 In
the Nasdaq Response Letter, the
Exchange asserts that its experience has
shown that many of the current
compliance periods are too short,
particularly given the extraordinary
volatility in the securities markets over
the past decade.28 Specifically, the
Exchange notes that in its experience,
and as also noted in the BIO Comment
Letter, the existing time periods do not
sufficiently account for daily market
fluctuations, and given the changes that
have taken place in the financial
markets, the existing time periods are
unreasonably short.29 Further, the
Exchange notes that the proposed longer
compliance periods are in line with the
compliance periods afforded by other
exchanges.30 For example, Nasdaq states
that the NYSE Amex rules provide that
staff can grant a company up to 18
months to regain compliance with its
market value of publicly held shares
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23 Id.
24 The Exchange notes that such monitoring
includes staff review of virtually every SEC filing
made by listing companies, including proxies and
annual and quarterly financial reports. See Nasdaq
Response Letter, supra note 6, at 3.
25 See Nasdaq Response Letter, supra note 6, at
1–2.
26 See CFA Comment Letter, supra note 5.
27 Id.
28 See Nasdaq Response Letter, supra note 6, at
1 and 3.
29 See Nasdaq Response Letter, supra note 6, at
3.
30 See Nasdaq Response Letter, supra note 6, at
3.
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requirement, and the NYSE rules allow
staff to provide a company with up to
18 months to regain compliance with its
market capitalization requirement.31
CFA also argues that the proposal to
allow an automatic 180-day grace period
for the market value of publicly held
shares and market value of listed
securities requirements raises particular
concerns.32 Specifically, CFA states that
the market value standard is an
alternative to the stockholders’ equity
requirement, and thus companies listing
under this standard are companies that
fail to meet the minimum stockholders’
equity requirement.33 Further, CFA
notes that Nasdaq recently extended the
period to regain compliance with the
market value of listed securities
requirement from 30 to 90 days, and
that this proposed rule change would
now allow a company a total of 210
days of non-compliance before a
hearing.34 CFA also questions why the
180-day automatic grace period is
preferable to a case-by-case review.35
The Exchange responds that these
revised time periods are consistent with
the Exchange’s current bid price rule.36
Specifically, like the bid price rule, a
company would be found to be noncompliant only after it falls below the
current threshold for 30 days and would
thereafter be afforded 180 days to regain
compliance.37 Nasdaq also notes that
the maximum total time period that a
company that failed to meet the market
value of listed securities or market value
of publicly held shares requirements
could remain listed would be 18
months, which is consistent with the
compliance periods available at other
markets.38 With regard to CFA’s
31 See
Nasdaq Response Letter, supra note 6, at
32 See
CFA Comment Letter, supra note 5.
3.
33 Id.
34 In arriving at this figure, CFA is including in
its calculation the 30-day period required to trigger
non-compliance.
35 See CFA Comment Letter, supra note 5.
36 See Nasdaq Response Letter, supra note 6, at
2.
37 See Nasdaq Response Letter, supra note 6, at
2.
38 See Nasdaq Response Letter, supra note 6, at
2 (citing Section 802.02 of the NYSE Listed
Company Manual). Nasdaq notes that, as described
in the notice of the proposed rule change, a
company that receives a delisting letter after the
180-day compliance period may appeal the
delisting decision to the Hearings Panel, which can
grant up to an additional 180 day to regain
compliance. Thereafter, the company could remain
listed for an additional 180 days if the Nasdaq
Listing Council were to call the matter for review,
stay the company’s delisting, and determine to
grant additional time. In the Nasdaq Response
Letter, the Exchange states that it would be highly
unusual for the Listing Council to take such action
and noted that it does not believe that the Listing
Council has ever exercised its discretion to stay a
delisting to allow a company additional time to
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suggestion that Nasdaq should consider
a case-by-case review of companies
below the requirements rather than
granting an automatic 180-day
compliance period, Nasdaq states that
for price-related listing requirements,
automatic periods provide a transparent,
objective process, which is more
appropriate than subjective reviews.39
Further, it notes that such a process
provides clear guidance to companies
and their investors.40
CFA also asserts that Nasdaq should
be required to provide a variety of
additional information to support its
proposal.41 For example, CFA suggests
that Nasdaq should provide further data
regarding its discretionary authority to
delist a security during a compliance
period; 42 supplementary information
regarding compliance plans and
compliance periods granted by staff; and
statistics on the 180-day plan process
that was adopted last fall for companies
that are late in filing their periodic
reports.43 The FTI Comment Letter
expressed support for this portion of
CTA’s comment letter asserting that
Nasdaq should be required to provide
additional information and rationale in
support of its proposal.44 In response,
the Exchange states that the request for
additional information is not
appropriate or necessary for
consideration of the proposed rule
change. Rather, Nasdaq asserts that the
proposed rule change satisfies the
relevant statutory standards, and data
concerning Nasdaq’s historic
enforcement of listing standards is
already disclosed in Nasdaq OMX’s
public filings with the Commission and
is not necessary for consideration of this
proposal.45
Finally, the CFA Comment Letter
suggests that the Commission should
review the economic impact of the
proposed rule change on the exchange
and should require greater
independence in Nasdaq’s delisting
process if such rule changes are found
to benefit Nasdaq’s financial position.46
regain compliance with a price-based listing
requirement.
39 See Nasdaq Response Letter, supra note 6, at
4.
40 Id.
41 See CFA Comment Letter, supra note 5.
42 See supra note 10.
43 See CFA Comment Letter, supra note 5.
44 See FTI Comment letter, supra note 5.
45 See Nasdaq Response Letter, supra note 6, at
5.
46 See CFA Comment Letter, supra note 5. The
CFA Comment Letter also provides an additional
recommendation that is not aimed at this particular
rule proposal. Specifically, CFA argues that more
should be done to require exchanges to identify and
alert investors of noncompliant companies. Nasdaq
responded to this assertion in its Response Letter
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FTI also expressed support for this
portion of the CFA Comment Letter.47 In
its response, Nasdaq states that it has a
transparent, independent enforcement
process in place to support its listing
standards.48 Specifically, Nasdaq notes
that its staff has very limited discretion
to grant an extension to a company that
does not comply with a listing
requirement, and many rules provide for
automatic compliance periods rather
than compliance periods determined by
Nasdaq staff.49 The Nasdaq Response
Letter also describes the independence
of the delisting process with regard to
price-based listing requirements.50 In
particular, Nasdaq notes that after the
180-day automatic compliance periods
runs, Nasdaq staff has no discretion to
allow the company to continue trading
and must issue a delisting letter.51 A
company may appeal that delisting
letter to a Hearings Panel, which is
independent of Nasdaq and includes no
Nasdaq employees.52 Thereafter,
another independent body, the Nasdaq
Listing and Hearing Review Council
(‘‘Listing Council’’), would be the only
body with the ability to call the matter
for review and determine to grant
additional time to the company.53
Nasdaq also states that its Listing
Qualifications Department is housed in
a regulation group that is
organizationally and institutionally
separate than its business lines and is
directly accountable to the Regulatory
Oversight Committee of the Nasdaq
Board.54
The BIO Comment Letter generally
supported the Exchange’s proposal.55 In
particular, the BIO Comment Letter
stated that extending the number of
days from 10 to 30 to trigger noncompliance with the market value of
listed securities requirement would
by noting that companies are required to make
public disclosure that they are non-compliant with
listing standards, and Nasdaq includes the company
on the list of non-compliant companies on its Web
site and displays such information to investors
viewing the company’s quotation. Further, Nasdaq
has a display requirement for vendors that display
Nasdaq’s data feed, which requires them to show
the company’s noncompliance. Nasdaq did
acknowledge that vendors that do not obtain
quotation information from Nasdaq may not display
this information. See Nasdaq Response Letter, supra
note 6, at footnote 4.
47 See FTI Comment Letter, supra note 5, at 1.
48 See Nasdaq Response Letter, supra note 6, at
1.
49 See Nasdaq Response Letter, supra note 6, at
1.
50 See id. at 2.
51 See id.
52 See id.
53 See id. Nasdaq notes, however, that it would
be highly unusual for the Listing Council to take
such action.
54 See id.
55 See BIO Comment Letter, supra note 5.
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allow biotechnology companies to
regain some stability during daily
market fluctuations that persist for
emerging biotechnology companies.56
The BIO Comment Letter also expressed
support for the portion of the proposal
providing companies 45 days to submit
a plan to regain compliance, noting that
this increase will provide companies the
necessary time to work with their
investors to secure a long-term plan that
will bring them back into compliance
with listing standards.57
IV. Discussion
After careful review, 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 and, in particular,
with Section 6(b)(5) of the Act,58 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 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.59
The Commission notes that 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. The Commission
continues to believe that enforcement of
continued listing standards are
important to ensure that only companies
suitable for listing remain trading on
national securities exchanges. While the
Commission would be concerned about
any national securities exchange’s
proposal that would allow companies
falling below continued listing
standards to remain listed for an
extended period of time, the
Commission has determined to approve
the Nasdaq’s proposal for the reasons
discussed below.
The Commission believes that the
Exchange’s proposal to extend from 90
to 180 days the period in which
companies, that are non-compliant with
56 Id.
57 Id. In addition, the BIO Comment Letter
provided requests for Nasdaq to further modify
certain of its continued listing standards and
compliance periods. Because those requests do not
relate to the current proposed rule change before
the Commission, they will not be discussed in this
Order.
58 15 U.S.C. 78f(b)(5).
59 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).
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the market value of listed securities and
market value of publicly held shares
requirements, can regain compliance,
will better align the compliance period
for these continued listing standards
with the automatic 180 day compliance
period already provided in Nasdaq’s
rules for noncompliance with the bid
price requirement, as well as the rules
of other markets. As such, the
Commission believes that the proposal
should reduce investor confusion over
the compliance periods available under
Nasdaq’s price-related continued listing
requirements.60 Further, the change
should provide companies with
additional time to take actions that may
be necessary to regain compliance, such
as obtaining shareholder approval and
registering shares.
The CFA Comment Letter takes issue
with the extension of the automatic
compliance period for these continued
listing standards to 180 days, expressing
concern about non-compliant
companies remaining listed on the
Exchange for extended periods of time.
However, as the Exchange has
represented in the Notice and in the
Nasdaq Response Letter, the maximum
amount of time that could be afforded
to a company that falls out of
compliance with the market value of
listed securities or market value of
publicly held shares requirements
would be 18 months.61 The Exchange
further stated in its Response Letter that
it is highly unusual for the Listing
Council to stay a company’s delisting
and grant additional time to regain
compliance and that it does not believe
that the Listing Council has ever
exercised its discretion to take such
action for a price-based delisting
decision.62 The Commission also notes
that this maximum length of time of 18
months 63 is consistent with the
maximum amount of time that the
NYSE and NYSE Amex can provide for
a listed company to regain compliance
with its similar continued listing
standards.64 Further, the Exchange has
represented that it has the authority
under Nasdaq Rule 5100 to delist a
60 Under Nasdaq’s current rules, if a company’s
security has a closing bid price below $1 for 30
consecutive trading days, it is deemed to be noncompliant with the bid price requirement and is
automatically provided 180 calendar days to regain
compliance. See Nasdaq Rule 5810(b)(3)(A).
61 As noted, this maximum 18 month compliance
time only exists assuming every maximum
compliance period is granted and an appeal was
called for review by Nasdaq’s Listing Council. See
supra note 11.
62 See supra note 38.
63 See supra note 11.
64 See Section 802.02 of the NYSE Listed
Company Manual and Section 1009 of the NYSE
Amex Company Guide.
E:\FR\FM\05FEN1.SGM
05FEN1
srobinson on DSKHWCL6B1PROD with NOTICES
6076
Federal Register / Vol. 75, No. 24 / Friday, February 5, 2010 / Notices
security during a compliance period if
the market value of listed securities or
market value of publicly held shares
was so low that delisting is necessary to
maintain the quality of and public
confidence in the market, to prevent
fraudulent and manipulative acts and
practices, and to protect investors and
the public interest. Notwithstanding the
lengthened automatic compliance
periods afforded to issuers under the
proposed rule change, the Commission
expects Nasdaq to use its authority to
delist issuers in a prompt, efficient and
fair manner where necessary and
appropriate in accordance with Nasdaq
Rule 5100, especially in those situations
where the market value of a company’s
stock is so low as to make continued
trading unwarranted.
The Commission also believes that
Nasdaq’s proposal to extend the period
that a company would need to be below
the minimum market value of listed
securities requirement before being
deemed non-compliant from 10 to 30
consecutive trading days is appropriate
and consistent with the Act. The
Commission notes that this change will
further harmonize Nasdaq’s pricerelated continued listing requirements,
as the bid price and market value of
publicly held shares requirements
currently provide that a company is not
deficient until it falls below the
respective standard for 30 consecutive
trading days. Further, as noted in the
Nasdaq Response Letter, this time
period is consistent with, and in some
cases more stringent than, the threshold
time periods on other exchanges.
Specifically, on NYSE Amex, a
company is deemed to be noncompliant with the market value of
publicly held shares requirement only
after it has been below the standard for
90 consecutive days.65 In addition, a
company is considered non-compliant
with the NYSE’s market capitalization
requirement after the company falls
below the standard for 30 consecutive
trading days.66
With regard to deficiencies for which
a company can provide staff with a plan
to regain compliance,67 the Commission
believes that increasing from 105 to 180
the maximum number of calendar days
for which staff can grant an extension of
time from its initial notification of noncompliance will provide companies
with additional time that may be
necessary to implement a plan to regain
compliance where appropriate. The
65 See
Nasdaq Response Letter, supra note 6, at
66 See
Nasdaq Response Letter, supra note 6, at
67 See
Nasdaq Rule 5810(c)(2) and IM–5812.
3.
3.
VerDate Nov<24>2008
16:26 Feb 04, 2010
Jkt 220001
Commission notes that the maximum
time period of 180 days is not an
automatic grace period, but rather each
company’s compliance period will be
determined by Nasdaq staff after review
of the company’s compliance plan.
Accordingly, the Commission expects
Nasdaq staff to conduct a thorough caseby-case review of each company’s plan
of compliance, and make an
individualized determination as to the
extension of time that is appropriate for
a particular company. In addition, even
with this change, the Commission notes
that the total maximum amount of time
that could be afforded to a company that
failed to meet a listing requirement that
allows for the submission of a plan to
regain compliance would be 18 months,
and this maximum 18 months assumes
all compliance periods are extended to
the permissible maximum during the
appeal process by the Hearings Panel
and Listing Council.68 As discussed
above, this time period is consistent
with the maximum amount of time a
company is permitted to regain
compliance with similar continued
listing standards under NYSE’s rules.69
The Commission believes that
Nasdaq’s proposal to increase from 15 to
45 days the length of time a company
has to submit a plan to regain
compliance should provide companies
with additional time to devise a
meaningful and workable plan to regain
compliance. Further, the Commission
notes that this revised time period is
consistent with the NYSE’s rules, which
generally provide a company with 45
days from receipt of a letter of noncompliance to submit a plan to regain
compliance.70 We further note that the
45 days does not extend the maximum
time period the staff can allow for
compliance.71
Finally, the Commission notes that
while the additional, specific
information that the CFA argued should
be provided by Nasdaq on issues such
as the historic enforcement of Nasdaq’s
listing standards might be useful for
many purposes, it agrees with Nasdaq
that such data and information is not
required in order for the Commission to
find that the current proposed rule
change is consistent with the Act.72 In
addition, the Commission believes that
68 See
supra note 15.
supra note 64.
70 Section 802.02 of the NYSE Listed Company
Manual.
71 For example, if the plan is submitted 45 days
after notification of non-compliance, staff could
only grant an additional 135 days to regain
compliance.
72 The Commission notes that as a registered
national securities exchange, the Commission has
oversight over Nasdaq’s enforcement of its rules,
including the delisting rules and process.
69 See
PO 00000
Frm 00137
Fmt 4703
Sfmt 4703
the CFA’s call for greater independence
in Nasdaq’s delisting process is not an
issue that is directly before the
Commission in this proposed rule
change. The rules governing and
outlining the current delisting process
of the Exchange have been reviewed by
the Commission and approved as being
consistent with the Act. As noted above,
many of the changes proposed in the
current rule filing involve the
lengthening of automatic threshold or
compliance periods that are not subject
to the discretion of Nasdaq staff. While
Nasdaq is lengthening from 105 to 180
the maximum number of calendar days
for which staff can grant an extension of
time for compliance with regard to those
deficiencies for which a company can
provide staff with a plan to regain
compliance, the Commission does not
believe that this changes the
independence of the Hearings Panel and
Listing Council. Although we recognize
that the staff will have more discretion
in setting the initial length of the
compliance period for certain
deficiencies, upon appeal, any delisting
for non-compliance will continue to be
reviewed by independent panels. In
addition, as noted, the maximum length
of time permitted under the proposed
rule change is consistent with other
markets’ rules.73
In summary, as noted above, the
Commission believes that enforcement
of continued listing standards is of
critical importance to our financial
markets and investing public and,
among other things helps to ensure that
exchange traded securities have
adequate depth and liquidity necessary
to promote fair and orderly markets.
While the Nasdaq’s rule proposal does
extend the time frames a company can
continue to trade while out of
compliance with certain continued
listing standards, the changes are
consistent with that of other national
securities exchanges and do provide
transparency to the delisting process.
We also continue to expect Nasdaq, as
they have represented, to monitor
companies that are out of compliance
and delist them promptly should there
be public interest or other concerns that
make continued trading unwarranted.
For the reasons noted above, the
Commission believes that the proposed
rule change is reasonable and consistent
with the Act.
V. Conclusion
It is therefore ordered, pursuant to
Section 19(b)(2) of the Act,74 that the
73 See
74 15
E:\FR\FM\05FEN1.SGM
supra note 64.
U.S.C. 78s(b)(2).
05FEN1
Federal Register / Vol. 75, No. 24 / Friday, February 5, 2010 / Notices
proposed rule change (SR–NASDAQ–
2009–077) be, and hereby is, approved.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.75
Florence E. Harmon,
Deputy Secretary.
[FR Doc. 2010–2500 Filed 2–4–10; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–61460; File No. SR–
NASDAQ–2010–018]
Self-Regulatory Organizations; The
NASDAQ Stock Market LLC; Notice of
Filing and Immediate Effectiveness of
Proposed Rule Change To Modify
NASDAQ’s Order Routing Rule
February 1, 2010.
Pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934
(‘‘Act’’) 1 and Rule 19b–4 thereunder,2
notice is hereby given that on January
29, 2010, The NASDAQ Stock Market
LLC (‘‘Nasdaq’’ or the ‘‘Exchange’’) filed
with the Securities and Exchange
Commission (‘‘Commission’’) the
proposed rule change as described in
Items I and II below, which Items have
been prepared by Nasdaq. Nasdaq has
designated the proposed rule change as
constituting a rule change under Rule
19b–4(f)(6) under the Act,3 which
renders the proposal effective upon
filing with the Commission. The
Commission is publishing this notice to
solicit comments on the proposed rule
change from interested persons.
srobinson on DSKHWCL6B1PROD with NOTICES
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
The Exchange is filing this proposed
rule change to amend Rule 4758 to
describe available routing options in
greater detail, to modify an existing
routing option, and to add a new routing
option. NASDAQ proposes to
implement the rule change on February
1, 2010. The text of the proposed rule
change is available at https://
nasdaq.cchwallstreet.com/, at the
Exchange’s principal office, and at the
Commission’s Public Reference Room.
CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
3 17 CFR 240.19b–4(f)(6).
1 15
16:26 Feb 04, 2010
In its filing with the Commission, the
Exchange included statements
concerning the purpose of and basis for
the proposed rule change and discussed
any comments it received on the
proposed rule change. The text of these
statements may be examined at the
places specified in Item IV below. The
Exchange has prepared summaries, set
forth in Sections A, B, and C below, of
the most significant aspects of such
statements.
A. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
1. Purpose
NASDAQ is amending Rule 4758,
which describes its order routing
processes, to describe existing order
routing options with greater specificity,
to modify an existing routing option,
and to add a new routing option.
Currently, routing options available
through NASDAQ are all variations of
three main routing options, known as
DOT, STGY, and SCAN. Although the
rule language for these routing options
describes the available variations of the
main options in general terms,
NASDAQ believes that understanding of
these options would be enhanced by
describing the different versions as
separately named routing options.
NASDAQ is also amending Rule 4758 to
include a definition of ‘‘System routing
table,’’ defined as the proprietary
process for determining the specific
trading venues to which the NASDAQ
System routes orders and the order in
which it routes them. The definition
reflects the fact that NASDAQ, like
other trading venues, maintains
different routing tables for different
routing options and modifies them on a
regular basis to reflect assessments
about the destination markets. Such
assessments consider factors such as a
destination’s latency, fill rates,
reliability, and cost. Accordingly, the
definition specifies that NASDAQ
reserves the right to maintain a different
routing table for different routing
options and to modify routing tables at
any time without notice.4 All routing
4 At present, all System routing tables include
NASDAQ’s affiliate, NASDAQ OMX BX (‘‘BX’’).
Thus, all routed orders have the opportunity to
route to this venue, with the exception of DOT
orders routed directly to the NYSE or NYSE Amex
opening or closing processes and directed orders
that are directed to route to venues other than BX.
75 17
VerDate Nov<24>2008
II. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
Jkt 220001
PO 00000
Frm 00138
Fmt 4703
Sfmt 4703
6077
complies with the requirements of Rule
611 of Regulation NMS.
• DOT is a routing option for orders
that the entering firm wishes to
designate for participation in the NYSE
or NYSE Amex opening or closing
processes. DOT orders do not check the
NASDAQ book prior to routing directly
to NYSE or NYSE Amex. After
attempting to execute at NYSE or NYSE
Amex, DOT orders thereafter check the
NASDAQ book for available shares and
are then converted into SCAN or STGY
orders, depending on the designation of
the entering firm. If a DOT order
designated to participate in the opening
process is entered after 9:30 a.m.,
moreover, it will be converted into a
SCAN or STGY order, depending on the
designation of the entering firm.
• DOTI is a routing option under
which orders check the NASDAQ book
and destinations on the DOTI System
routing table and then are sent to NYSE
or NYSE Amex. Such orders do not
return to the NASDAQ book if they are
not executed, but rather remain on the
NYSE or NYSE Amex book until
executed, cancelled, or expired.
• STGY is a routing option under
which orders check the NASDAQ book,
check destinations on the STGY System
routing table, and then return to the
NASDAQ book. After returning to the
NASDAQ book, a STGY order will
subsequently route out to another
market center if it posts a bid or offer
that locks or crosses the STGY order.
• SKNY is a form of STGY in which
the entering party instructs the System
to bypass any market centers included
in the STGY System routing table that
are not posting Protected Quotations
within the meaning of Regulation NMS.
• SCAN is a routing option under
which orders check the NASDAQ book,
check destinations on the SCAN System
routing table, and then return to the
NASDAQ book. After returning to the
NASDAQ book, a SCAN order will not
subsequently route out to another
market center if it posts a bid or offer
that locks or crosses the SCAN order.
• SKIP is a form of SCAN in which
the entering party instructs the System
to bypass any market centers included
in the SCAN System routing table that
are not posting Protected Quotations
within the meaning of Regulation NMS.
• TFTY is a routing option that was
formerly comprised within the
definition of SCAN. TFTY orders
currently do not check the NASDAQ
book for available shares prior to routing
to destinations on the TFTY System
routing table. Thereafter, they return to
the NASDAQ book and, like SCAN
orders, do not route out again. TFTY is
being modified by this proposed rule
E:\FR\FM\05FEN1.SGM
05FEN1
]]>Agencies
[Federal Register Volume 75, Number 24 (Friday, February 5, 2010)]
[Notices]
[Pages 6072-6077]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2010-2500]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-61446; File No. SR-NASDAQ-2009-077]
Self-Regulatory Organizations; The NASDAQ Stock Market LLC; Order
Approving Proposed Rule Change To Modify the Procedures Followed When a
Listed Company Falls Below Certain Listing Requirements
January 29, 2010.
I. Introduction
On August 17, 2009, The NASDAQ Stock Market LLC (``Nasdaq'' or
``Exchange'') 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 length of certain compliance periods
in Nasdaq's continued listing requirements and to modify the time
available for a company to provide a plan to regain compliance with
certain listing requirements.\3\ The proposed rule change was published
for comment in the Federal Register on September 8, 2009.\4\ The
Commission received three comment letters on the proposal.\5\ On
December 28, 2009 the Exchange filed a response to the comment
letter.\6\ This order approves the proposed rule change.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ Nasdaq is also proposing to eliminate certain abbreviations
that are used inconsistently and utilize defined terms, as
appropriate, in Rules 5810 and 5840, and to remove authority in Rule
5810(c)(2)(C) that is duplicated in Rule 5810(c)(2)(B).
\4\ See Securities Exchange Act Release No. 46267 (September 2,
2009), 74 FR 46267 (``Notice'').
\5\ See letter from Barbara Roper, Director of Investor
Protection, Consumer Federation of America, to Elizabeth M. Murphy,
Secretary, Commission, dated September 28, 2009 (``CFA Comment
Letter''); letter from Alan F. Eisenberg, Executive Vice President,
Biotechnology Industry Organization (``BIO'') to Elizabeth M.
Murphy, Secretary, Commission, dated September 29, 2009 (``BIO
Comment Letter''); and letter from Jason S. Frankl, Senior Managing
Director, FTI Consulting (``FTI''), to Elizabeth M. Murphy,
Secretary, Commission, dated October 5, 2009 (``FTI Comment
Letter'').
\6\ See letter from Arnold Golub, Vice President and Associate
General Counsel, Nasdaq, to Elizabeth Murphy, Secretary, Commission,
dated December 28, 2009 (``Nasdaq Response Letter'').
---------------------------------------------------------------------------
II. Description of the Proposal
Price Related Criteria
Under Nasdaq's current continued listing requirements relating to
market value of listed securities, a company is considered to be non-
compliant after falling below the standard for 10 consecutive trading
days.\7\ Thereafter, the company is provided 90 calendar days to regain
compliance with the market value of listed securities requirement.
Further, Nasdaq's current continued listing rules relating to market
value of publicly held shares provide that a company is deficient if it
is below the standard for 30 consecutive trading days. Upon such
failure, the company is provided with 90 calendar days to regain
compliance.\8\
---------------------------------------------------------------------------
\7\ Nasdaq Rule 5810(b)(3)(C). NASDAQ changed the period to
regain compliance with the market value of listed securities
requirement from 30 to 90 days in January of last year. Securities
Exchange Act Release No. 59291 (January 23, 2009), 74 FR 5197
(January 29, 2009) (SR-NASDAQ-2009-002).
\8\ Nasdaq Rule 5810(b)(3)(D).
---------------------------------------------------------------------------
Nasdaq proposes to modify the length of time required to trigger
non-compliance with the market value of listed securities requirement
and to modify the compliance periods associated with the Exchange's
market value of listed securities and market value of publicly held
shares continued listing requirements. Nasdaq notes that, under its bid
price continued listing standard, if a company's security has a closing
bid price below $1.00 for 30 consecutive trading days, it no longer
meets the bid price requirement and is automatically provided 180
calendar days to regain compliance.\9\ Nasdaq asserts that because
compliance with each of these rules is directly related to the price of
an issuer's security, the length of time to trigger non-compliance, and
the amount of time afforded as a compliance period, should be
consistent. As such, Nasdaq proposes to lengthen the period that a
company would need to be below the market
[[Page 6073]]
value of listed securities requirement before being considered non-
compliant from 10 to 30 consecutive trading days. Nasdaq also proposes
to extend from 90 to 180 days the compliance period in which companies
that are non-compliant with the market value of listed securities and
market value of publicly held shares requirements can regain
compliance.\10\ Nasdaq notes that it believes that the existing 90-day
time frames do not provide sufficient time for a company to regain
compliance.
---------------------------------------------------------------------------
\9\ Nasdaq Rule 5810(b)(3)(A).
\10\ In its filing, Nasdaq noted that it could apply its
authority described in Nasdaq Rule 5100 to delist a security during
a compliance period if the market value of listed securities or
market value of publicly held shares was so low that delisting is
necessary to maintain the quality of and public confidence in the
market, to prevent fraudulent and manipulative acts and practices,
and to protect investors and the public interest.
---------------------------------------------------------------------------
As revised, the maximum amount of time that could be afforded to a
company that failed to meet the market value of listed securities or
market value of publicly held shares requirements would be 18
months.\11\
---------------------------------------------------------------------------
\11\ A company could only receive an extension up to this 18-
month maximum length if: (i) It failed to comply during the
automatic 180-day compliance period; (ii) the company appealed to a
Hearings Panel; and (iii) the Nasdaq Listing and Hearing Review
Council (``Listing Council'') determined to call the matter for
review, stay the company's delisting, and, after reviewing the
company's compliance plan, provide the company with the maximum 360-
day period from the date of the Staff Delisting Determination to
regain compliance.
---------------------------------------------------------------------------
Requirements With Respect to Compliance Plans
Nasdaq also proposes to modify the periods applicable in cases
where a company can provide Nasdaq staff with a plan to regain
compliance, such as when a company fails to meet the minimum
requirements for stockholders' equity, the number of publicly held
shares, or the number of shareholders.\12\ Currently, companies are
provided 15 calendar days to submit a plan to regain compliance.
Following a review of the plan, staff can grant the company a period of
up to 105 calendar days from the initial notification of non-compliance
for the company to regain compliance. Nasdaq proposes to increase the
number of calendar days a company has to present its plan from 15 to
45, and to permit staff to grant up to a 5-day extension of this period
upon good cause shown.\13\ Nasdaq asserts that 15 days is often
insufficient for a company to formulate a meaningful plan, particularly
in the current market and economic conditions. Further, Nasdaq proposes
to increase from 105 to 180 the number of calendar days for which staff
can grant an extension of time to regain compliance from its initial
notification of non-compliance.\14\ Nasdaq states that this additional
time will better allow companies to implement a plan to regain
compliance.
---------------------------------------------------------------------------
\12\ Nasdaq Rule 5810(c)(2) and IM-5810-2 provide the procedures
governing deficiencies for which a company may submit a plan of
compliance to Nasdaq staff. Nasdaq has posted frequently asked
questions at https://www.nasdaq.com/about/faqs-listing-information-questions.stm#continued, which discuss the information a company
should consider in preparing its plan of compliance.
\13\ Nasdaq anticipates that this authority would be used to
address cases where the company could not timely submit its plan due
to events outside the control of the company, such as when severe
weather interferes with the company's ability to provide the
necessary information before the deadline.
\14\ Nasdaq states that staff will determine whether to allow
the company additional time, and if so how much time to allow, based
on a review of the company's plan of compliance.
---------------------------------------------------------------------------
As revised, the maximum amount of time that could be afforded to a
company that failed to meet a listing requirement that allows the
submission of a plan to regain compliance would be 18 months.\15\
---------------------------------------------------------------------------
\15\ A company could only receive an extension up to this 18-
month maximum length if: (i) After reviewing the company's
compliance plan, Nasdaq staff granted the company the maximum 180-
day period to regain compliance; (ii) the company failed to comply
within the time allowed by staff and appealed to a Hearings Panel;
and (iii) the Nasdaq Listing Council determined to call the matter
for review, stay the company's delisting, and, after reviewing the
company's compliance plan, provide the company with the maximum 360-
day period from the date of the Staff Delisting Determination to
regain compliance.
---------------------------------------------------------------------------
Implementation
Nasdaq states that any company that had not yet been notified that
it was non-compliant with the market value of listed securities
requirement upon Commission approval of the proposed rule change will
not be notified until they are below the requirement for 30 consecutive
trading days.\16\ Any company that has already been notified that it
was non-compliant with either the market value of listed securities
requirement or the market value of publicly held shares requirement and
that is still in the 90 calendar day compliance period for such failure
will have their compliance period extended until 180 calendar days from
the date they were originally notified of the deficiency.\17\ No
additional time will be provided to a company that has received a Staff
Delisting Determination for failure to meet either of those
requirements before the proposed rule change is approved.\18\
---------------------------------------------------------------------------
\16\ For example, if a security is below the market value of
listed securities requirement for 7 consecutive trading days when
the proposed rule is approved, the company would not be notified
that it is deficient unless and until the security remains below the
requirement for another 23 consecutive trading days, such that it
remained below for a total of 30 consecutive trading days.
\17\ For example, if a company had been notified that its
security was below either the market value of listed securities or
market value of publicly held shares requirement 30 days before the
proposed rule is approved, such that it had 60 days remaining in its
compliance period, that compliance period would be extended by 90
days so that the company would have 150 days remaining in the
compliance period.
\18\ For example, if a company had been notified that its
security was below either the market value of listed securities or
market value of publicly held shares requirement 95 days before the
proposed rule is approved, the company would not receive any
additional time as a result of the proposed rule change. Such
companies would continue through the Hearings and Appeals process,
however, and could receive additional time as provided for in Nasdaq
Rules 5815(c)(1)(A) and 5820(d)(1).
---------------------------------------------------------------------------
With respect to the proposed changes to the compliance plan
process, if a company has not yet submitted its plan of compliance when
the proposed rule change is approved, the deadline to submit that plan
will be extended until 45 days from the date of staff's notification of
the deficiency. If the company has submitted its plan of compliance
when the proposed rule change is approved, but staff has not yet made a
determination with respect to whether to grant additional time, staff
will be permitted to grant the company up to 180 days from staff's
notification of the deficiency to regain compliance. If the company has
already received an extension of time to regain compliance from staff
when the proposed rule change is approved,\19\ at the end of that
exception staff could, based on a review of the company at the time,
grant additional time for the company to regain compliance, up to 180
days from staff's original notification of the deficiency.\20\ No
additional time will be provided to a company that has already received
a Staff Delisting Determination at the time the proposed rule change is
approved.\21\
---------------------------------------------------------------------------
\19\ Nasdaq Rule 5810(c)(2)(B)(i).
\20\ The proposal to allow a company additional time at the end
of its extension based on staff's further review of the company is
consistent with Nasdaq's current practice of potentially allowing a
company additional time if it was not initially granted the full 105
days allowed by current Nasdaq Rule 5810(c)(2)(B)(i).
\21\ Such companies would continue through the Hearings and
Appeals process, however, and could receive additional time as
provided for in Nasdaq Rules 5815(c)(1)(A) and 5820(d)(1).
---------------------------------------------------------------------------
III. Comment Summary
In its comment letter, CFA raises several concerns regarding the
Exchange's proposal.\22\ First, CFA argues that the Exchange's proposal
will lead to a proliferation of lengthy automatic compliance periods
for companies that fall below listing standards, potentially allowing
large numbers of non-compliant companies to
[[Page 6074]]
remain listed for extended periods of time with little or no
oversight.\23\ In response, the Exchange states that it continuously
monitors each listed company for compliance with the listing rules and
determines whether any public interest concerns exist that may make
continued listing inappropriate.\24\ In particular, the Exchange notes
that notwithstanding the automatic compliance periods, Nasdaq staff has
the authority to apply additional and more stringent criteria to
shorten a compliance period or delist a company before the end of the
compliance period if it believes that the continued listing of a
company would be contrary to the public interest.\25\
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\22\ See CFA Comment Letter, supra note 5.
\23\ Id.
\24\ The Exchange notes that such monitoring includes staff
review of virtually every SEC filing made by listing companies,
including proxies and annual and quarterly financial reports. See
Nasdaq Response Letter, supra note 6, at 3.
\25\ See Nasdaq Response Letter, supra note 6, at 1-2.
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In addition, CFA notes that while Nasdaq has stated that the
proposed rule change is intended to harmonize and ensure consistency in
the compliance periods across its continued listing rules, Nasdaq has
chosen to apply its least restrictive compliance period (i.e., its
longest compliance period of 180 days).\26\ The CFA asserts that if
harmonization is needed, Nasdaq should instead ``harmonize up, not
down'' and apply its shorter compliance periods consistently across its
rules.\27\ In the Nasdaq Response Letter, the Exchange asserts that its
experience has shown that many of the current compliance periods are
too short, particularly given the extraordinary volatility in the
securities markets over the past decade.\28\ Specifically, the Exchange
notes that in its experience, and as also noted in the BIO Comment
Letter, the existing time periods do not sufficiently account for daily
market fluctuations, and given the changes that have taken place in the
financial markets, the existing time periods are unreasonably
short.\29\ Further, the Exchange notes that the proposed longer
compliance periods are in line with the compliance periods afforded by
other exchanges.\30\ For example, Nasdaq states that the NYSE Amex
rules provide that staff can grant a company up to 18 months to regain
compliance with its market value of publicly held shares requirement,
and the NYSE rules allow staff to provide a company with up to 18
months to regain compliance with its market capitalization
requirement.\31\
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\26\ See CFA Comment Letter, supra note 5.
\27\ Id.
\28\ See Nasdaq Response Letter, supra note 6, at 1 and 3.
\29\ See Nasdaq Response Letter, supra note 6, at 3.
\30\ See Nasdaq Response Letter, supra note 6, at 3.
\31\ See Nasdaq Response Letter, supra note 6, at 3.
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CFA also argues that the proposal to allow an automatic 180-day
grace period for the market value of publicly held shares and market
value of listed securities requirements raises particular concerns.\32\
Specifically, CFA states that the market value standard is an
alternative to the stockholders' equity requirement, and thus companies
listing under this standard are companies that fail to meet the minimum
stockholders' equity requirement.\33\ Further, CFA notes that Nasdaq
recently extended the period to regain compliance with the market value
of listed securities requirement from 30 to 90 days, and that this
proposed rule change would now allow a company a total of 210 days of
non-compliance before a hearing.\34\ CFA also questions why the 180-day
automatic grace period is preferable to a case-by-case review.\35\
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\32\ See CFA Comment Letter, supra note 5.
\33\ Id.
\34\ In arriving at this figure, CFA is including in its
calculation the 30-day period required to trigger non-compliance.
\35\ See CFA Comment Letter, supra note 5.
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The Exchange responds that these revised time periods are
consistent with the Exchange's current bid price rule.\36\
Specifically, like the bid price rule, a company would be found to be
non-compliant only after it falls below the current threshold for 30
days and would thereafter be afforded 180 days to regain
compliance.\37\ Nasdaq also notes that the maximum total time period
that a company that failed to meet the market value of listed
securities or market value of publicly held shares requirements could
remain listed would be 18 months, which is consistent with the
compliance periods available at other markets.\38\ With regard to CFA's
suggestion that Nasdaq should consider a case-by-case review of
companies below the requirements rather than granting an automatic 180-
day compliance period, Nasdaq states that for price-related listing
requirements, automatic periods provide a transparent, objective
process, which is more appropriate than subjective reviews.\39\
Further, it notes that such a process provides clear guidance to
companies and their investors.\40\
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\36\ See Nasdaq Response Letter, supra note 6, at 2.
\37\ See Nasdaq Response Letter, supra note 6, at 2.
\38\ See Nasdaq Response Letter, supra note 6, at 2 (citing
Section 802.02 of the NYSE Listed Company Manual). Nasdaq notes
that, as described in the notice of the proposed rule change, a
company that receives a delisting letter after the 180-day
compliance period may appeal the delisting decision to the Hearings
Panel, which can grant up to an additional 180 day to regain
compliance. Thereafter, the company could remain listed for an
additional 180 days if the Nasdaq Listing Council were to call the
matter for review, stay the company's delisting, and determine to
grant additional time. In the Nasdaq Response Letter, the Exchange
states that it would be highly unusual for the Listing Council to
take such action and noted that it does not believe that the Listing
Council has ever exercised its discretion to stay a delisting to
allow a company additional time to regain compliance with a price-
based listing requirement.
\39\ See Nasdaq Response Letter, supra note 6, at 4.
\40\ Id.
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CFA also asserts that Nasdaq should be required to provide a
variety of additional information to support its proposal.\41\ For
example, CFA suggests that Nasdaq should provide further data regarding
its discretionary authority to delist a security during a compliance
period; \42\ supplementary information regarding compliance plans and
compliance periods granted by staff; and statistics on the 180-day plan
process that was adopted last fall for companies that are late in
filing their periodic reports.\43\ The FTI Comment Letter expressed
support for this portion of CTA's comment letter asserting that Nasdaq
should be required to provide additional information and rationale in
support of its proposal.\44\ In response, the Exchange states that the
request for additional information is not appropriate or necessary for
consideration of the proposed rule change. Rather, Nasdaq asserts that
the proposed rule change satisfies the relevant statutory standards,
and data concerning Nasdaq's historic enforcement of listing standards
is already disclosed in Nasdaq OMX's public filings with the Commission
and is not necessary for consideration of this proposal.\45\
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\41\ See CFA Comment Letter, supra note 5.
\42\ See supra note 10.
\43\ See CFA Comment Letter, supra note 5.
\44\ See FTI Comment letter, supra note 5.
\45\ See Nasdaq Response Letter, supra note 6, at 5.
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Finally, the CFA Comment Letter suggests that the Commission should
review the economic impact of the proposed rule change on the exchange
and should require greater independence in Nasdaq's delisting process
if such rule changes are found to benefit Nasdaq's financial
position.\46\
[[Page 6075]]
FTI also expressed support for this portion of the CFA Comment
Letter.\47\ In its response, Nasdaq states that it has a transparent,
independent enforcement process in place to support its listing
standards.\48\ Specifically, Nasdaq notes that its staff has very
limited discretion to grant an extension to a company that does not
comply with a listing requirement, and many rules provide for automatic
compliance periods rather than compliance periods determined by Nasdaq
staff.\49\ The Nasdaq Response Letter also describes the independence
of the delisting process with regard to price-based listing
requirements.\50\ In particular, Nasdaq notes that after the 180-day
automatic compliance periods runs, Nasdaq staff has no discretion to
allow the company to continue trading and must issue a delisting
letter.\51\ A company may appeal that delisting letter to a Hearings
Panel, which is independent of Nasdaq and includes no Nasdaq
employees.\52\ Thereafter, another independent body, the Nasdaq Listing
and Hearing Review Council (``Listing Council''), would be the only
body with the ability to call the matter for review and determine to
grant additional time to the company.\53\ Nasdaq also states that its
Listing Qualifications Department is housed in a regulation group that
is organizationally and institutionally separate than its business
lines and is directly accountable to the Regulatory Oversight Committee
of the Nasdaq Board.\54\
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\46\ See CFA Comment Letter, supra note 5. The CFA Comment
Letter also provides an additional recommendation that is not aimed
at this particular rule proposal. Specifically, CFA argues that more
should be done to require exchanges to identify and alert investors
of noncompliant companies. Nasdaq responded to this assertion in its
Response Letter by noting that companies are required to make public
disclosure that they are non-compliant with listing standards, and
Nasdaq includes the company on the list of non-compliant companies
on its Web site and displays such information to investors viewing
the company's quotation. Further, Nasdaq has a display requirement
for vendors that display Nasdaq's data feed, which requires them to
show the company's noncompliance. Nasdaq did acknowledge that
vendors that do not obtain quotation information from Nasdaq may not
display this information. See Nasdaq Response Letter, supra note 6,
at footnote 4.
\47\ See FTI Comment Letter, supra note 5, at 1.
\48\ See Nasdaq Response Letter, supra note 6, at 1.
\49\ See Nasdaq Response Letter, supra note 6, at 1.
\50\ See id. at 2.
\51\ See id.
\52\ See id.
\53\ See id. Nasdaq notes, however, that it would be highly
unusual for the Listing Council to take such action.
\54\ See id.
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The BIO Comment Letter generally supported the Exchange's
proposal.\55\ In particular, the BIO Comment Letter stated that
extending the number of days from 10 to 30 to trigger non-compliance
with the market value of listed securities requirement would allow
biotechnology companies to regain some stability during daily market
fluctuations that persist for emerging biotechnology companies.\56\ The
BIO Comment Letter also expressed support for the portion of the
proposal providing companies 45 days to submit a plan to regain
compliance, noting that this increase will provide companies the
necessary time to work with their investors to secure a long-term plan
that will bring them back into compliance with listing standards.\57\
---------------------------------------------------------------------------
\55\ See BIO Comment Letter, supra note 5.
\56\ Id.
\57\ Id. In addition, the BIO Comment Letter provided requests
for Nasdaq to further modify certain of its continued listing
standards and compliance periods. Because those requests do not
relate to the current proposed rule change before the Commission,
they will not be discussed in this Order.
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IV. Discussion
After careful review, 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
and, in particular, with Section 6(b)(5) of the Act,\58\ 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 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.\59\
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\58\ 15 U.S.C. 78f(b)(5).
\59\ 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).
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The Commission notes that 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. The Commission continues to
believe that enforcement of continued listing standards are important
to ensure that only companies suitable for listing remain trading on
national securities exchanges. While the Commission would be concerned
about any national securities exchange's proposal that would allow
companies falling below continued listing standards to remain listed
for an extended period of time, the Commission has determined to
approve the Nasdaq's proposal for the reasons discussed below.
The Commission believes that the Exchange's proposal to extend from
90 to 180 days the period in which companies, that are non-compliant
with the market value of listed securities and market value of publicly
held shares requirements, can regain compliance, will better align the
compliance period for these continued listing standards with the
automatic 180 day compliance period already provided in Nasdaq's rules
for noncompliance with the bid price requirement, as well as the rules
of other markets. As such, the Commission believes that the proposal
should reduce investor confusion over the compliance periods available
under Nasdaq's price-related continued listing requirements.\60\
Further, the change should provide companies with additional time to
take actions that may be necessary to regain compliance, such as
obtaining shareholder approval and registering shares.
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\60\ Under Nasdaq's current rules, if a company's security has a
closing bid price below $1 for 30 consecutive trading days, it is
deemed to be non-compliant with the bid price requirement and is
automatically provided 180 calendar days to regain compliance. See
Nasdaq Rule 5810(b)(3)(A).
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The CFA Comment Letter takes issue with the extension of the
automatic compliance period for these continued listing standards to
180 days, expressing concern about non-compliant companies remaining
listed on the Exchange for extended periods of time. However, as the
Exchange has represented in the Notice and in the Nasdaq Response
Letter, the maximum amount of time that could be afforded to a company
that falls out of compliance with the market value of listed securities
or market value of publicly held shares requirements would be 18
months.\61\ The Exchange further stated in its Response Letter that it
is highly unusual for the Listing Council to stay a company's delisting
and grant additional time to regain compliance and that it does not
believe that the Listing Council has ever exercised its discretion to
take such action for a price-based delisting decision.\62\ The
Commission also notes that this maximum length of time of 18 months
\63\ is consistent with the maximum amount of time that the NYSE and
NYSE Amex can provide for a listed company to regain compliance with
its similar continued listing standards.\64\ Further, the Exchange has
represented that it has the authority under Nasdaq Rule 5100 to delist
a
[[Page 6076]]
security during a compliance period if the market value of listed
securities or market value of publicly held shares was so low that
delisting is necessary to maintain the quality of and public confidence
in the market, to prevent fraudulent and manipulative acts and
practices, and to protect investors and the public interest.
Notwithstanding the lengthened automatic compliance periods afforded to
issuers under the proposed rule change, the Commission expects Nasdaq
to use its authority to delist issuers in a prompt, efficient and fair
manner where necessary and appropriate in accordance with Nasdaq Rule
5100, especially in those situations where the market value of a
company's stock is so low as to make continued trading unwarranted.
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\61\ As noted, this maximum 18 month compliance time only exists
assuming every maximum compliance period is granted and an appeal
was called for review by Nasdaq's Listing Council. See supra note
11.
\62\ See supra note 38.
\63\ See supra note 11.
\64\ See Section 802.02 of the NYSE Listed Company Manual and
Section 1009 of the NYSE Amex Company Guide.
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The Commission also believes that Nasdaq's proposal to extend the
period that a company would need to be below the minimum market value
of listed securities requirement before being deemed non-compliant from
10 to 30 consecutive trading days is appropriate and consistent with
the Act. The Commission notes that this change will further harmonize
Nasdaq's price-related continued listing requirements, as the bid price
and market value of publicly held shares requirements currently provide
that a company is not deficient until it falls below the respective
standard for 30 consecutive trading days. Further, as noted in the
Nasdaq Response Letter, this time period is consistent with, and in
some cases more stringent than, the threshold time periods on other
exchanges. Specifically, on NYSE Amex, a company is deemed to be non-
compliant with the market value of publicly held shares requirement
only after it has been below the standard for 90 consecutive days.\65\
In addition, a company is considered non-compliant with the NYSE's
market capitalization requirement after the company falls below the
standard for 30 consecutive trading days.\66\
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\65\ See Nasdaq Response Letter, supra note 6, at 3.
\66\ See Nasdaq Response Letter, supra note 6, at 3.
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With regard to deficiencies for which a company can provide staff
with a plan to regain compliance,\67\ the Commission believes that
increasing from 105 to 180 the maximum number of calendar days for
which staff can grant an extension of time from its initial
notification of non-compliance will provide companies with additional
time that may be necessary to implement a plan to regain compliance
where appropriate. The Commission notes that the maximum time period of
180 days is not an automatic grace period, but rather each company's
compliance period will be determined by Nasdaq staff after review of
the company's compliance plan.
---------------------------------------------------------------------------
\67\ See Nasdaq Rule 5810(c)(2) and IM-5812.
---------------------------------------------------------------------------
Accordingly, the Commission expects Nasdaq staff to conduct a
thorough case-by-case review of each company's plan of compliance, and
make an individualized determination as to the extension of time that
is appropriate for a particular company. In addition, even with this
change, the Commission notes that the total maximum amount of time that
could be afforded to a company that failed to meet a listing
requirement that allows for the submission of a plan to regain
compliance would be 18 months, and this maximum 18 months assumes all
compliance periods are extended to the permissible maximum during the
appeal process by the Hearings Panel and Listing Council.\68\ As
discussed above, this time period is consistent with the maximum amount
of time a company is permitted to regain compliance with similar
continued listing standards under NYSE's rules.\69\
---------------------------------------------------------------------------
\68\ See supra note 15.
\69\ See supra note 64.
---------------------------------------------------------------------------
The Commission believes that Nasdaq's proposal to increase from 15
to 45 days the length of time a company has to submit a plan to regain
compliance should provide companies with additional time to devise a
meaningful and workable plan to regain compliance. Further, the
Commission notes that this revised time period is consistent with the
NYSE's rules, which generally provide a company with 45 days from
receipt of a letter of non-compliance to submit a plan to regain
compliance.\70\ We further note that the 45 days does not extend the
maximum time period the staff can allow for compliance.\71\
---------------------------------------------------------------------------
\70\ Section 802.02 of the NYSE Listed Company Manual.
\71\ For example, if the plan is submitted 45 days after
notification of non-compliance, staff could only grant an additional
135 days to regain compliance.
---------------------------------------------------------------------------
Finally, the Commission notes that while the additional, specific
information that the CFA argued should be provided by Nasdaq on issues
such as the historic enforcement of Nasdaq's listing standards might be
useful for many purposes, it agrees with Nasdaq that such data and
information is not required in order for the Commission to find that
the current proposed rule change is consistent with the Act.\72\ In
addition, the Commission believes that the CFA's call for greater
independence in Nasdaq's delisting process is not an issue that is
directly before the Commission in this proposed rule change. The rules
governing and outlining the current delisting process of the Exchange
have been reviewed by the Commission and approved as being consistent
with the Act. As noted above, many of the changes proposed in the
current rule filing involve the lengthening of automatic threshold or
compliance periods that are not subject to the discretion of Nasdaq
staff. While Nasdaq is lengthening from 105 to 180 the maximum number
of calendar days for which staff can grant an extension of time for
compliance with regard to those deficiencies for which a company can
provide staff with a plan to regain compliance, the Commission does not
believe that this changes the independence of the Hearings Panel and
Listing Council. Although we recognize that the staff will have more
discretion in setting the initial length of the compliance period for
certain deficiencies, upon appeal, any delisting for non-compliance
will continue to be reviewed by independent panels. In addition, as
noted, the maximum length of time permitted under the proposed rule
change is consistent with other markets' rules.\73\
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\72\ The Commission notes that as a registered national
securities exchange, the Commission has oversight over Nasdaq's
enforcement of its rules, including the delisting rules and process.
\73\ See supra note 64.
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In summary, as noted above, the Commission believes that
enforcement of continued listing standards is of critical importance to
our financial markets and investing public and, among other things
helps to ensure that exchange traded securities have adequate depth and
liquidity necessary to promote fair and orderly markets. While the
Nasdaq's rule proposal does extend the time frames a company can
continue to trade while out of compliance with certain continued
listing standards, the changes are consistent with that of other
national securities exchanges and do provide transparency to the
delisting process. We also continue to expect Nasdaq, as they have
represented, to monitor companies that are out of compliance and delist
them promptly should there be public interest or other concerns that
make continued trading unwarranted.
For the reasons noted above, the Commission believes that the
proposed rule change is reasonable and consistent with the Act.
V. Conclusion
It is therefore ordered, pursuant to Section 19(b)(2) of the
Act,\74\ that the
[[Page 6077]]
proposed rule change (SR-NASDAQ-2009-077) be, and hereby is, approved.
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\74\ 15 U.S.C. 78s(b)(2).
For the Commission, by the Division of Trading and Markets,
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pursuant to delegated authority.\75\
\75\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Deputy Secretary.
[FR Doc. 2010-2500 Filed 2-4-10; 8:45 am]
BILLING CODE 8011-01-P
