Self-Regulatory Organizations; The NASDAQ Stock Market LLC; Notice of Filing of Proposed Rule Change to Adopt Additional Listing Requirements for Reverse Mergers, 25730-25732 [2011-10936]
Download as PDF
25730
Federal Register / Vol. 76, No. 87 / Thursday, May 5, 2011 / Notices
90 days of such date if it finds such
longer period to be appropriate and
publishes its reasons for so finding or
(ii) as to which the self-regulatory
organization consents, the Commission
will:
(A) By order approve or disapprove
such proposed rule change, or
(B) institute proceedings to determine
whether the proposed rule change
should be disapproved.
IV. Solicitation of Comments
Interested persons are invited to
submit written data, views, and
arguments concerning the foregoing,
including whether the proposed rule
change is consistent with the Exchange
Act. Comments may be submitted by
any of the following methods:
jlentini on DSKJ8SOYB1PROD with NOTICES
Electronic Comments
• Use the Commission’s Internet
comment form (https://www.sec.gov/
rules/sro.shtml); or
• Send an e-mail to rulecomments@sec.gov. Please include File
Number SR–CHX–2011–07 on the
subject line.
submissions. You should submit only
information that you wish to make
available publicly. All submissions
should refer to File Number SR–CHX–
2011–07 and should be submitted on or
before May 26, 2011.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.17
Cathy H. Ahn,
Deputy Secretary.
[FR Doc. 2011–10928 Filed 5–4–11; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–64371; File No. SR–
NASDAQ–2011–056]
Self-Regulatory Organizations; The
NASDAQ Stock Market LLC; Notice of
Filing of Proposed Rule Change to
Adopt Additional Listing Requirements
for Reverse Mergers
April 29, 2011.
Pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934
Paper Comments
(‘‘Act’’),1 and Rule 19b–4 thereunder,2
• Send paper comments in triplicate
notice is hereby given that on April 18,
to Elizabeth M. Murphy, Secretary,
2011, The NASDAQ Stock Market LLC
Securities and Exchange Commission,
(‘‘Nasdaq’’) filed with the Securities and
100 F Street, NE., Washington, DC
Exchange Commission (‘‘Commission’’)
20549–1090.
the proposed rule change as described
in Items I and II below, which Items
All submissions should refer to File
have been substantially prepared by
Number SR–CHX–2011–07. This file
Nasdaq. The Commission is publishing
number should be included on the
subject line if e-mail is used. To help the this notice to solicit comments on the
proposed rule change from interested
Commission process and review your
persons.
comments more efficiently, please use
only one method. The Commission will
I. Self-Regulatory Organization’s
post all comments on the Commission’s
Statement of the Terms of the Substance
Internet website (https://www.sec.gov/
of the Proposed Rule Change
rules/sro.shtml). Copies of the
Nasdaq proposes to adopt additional
submission, all subsequent
listing requirements for a company that
amendments, all written statements
has become public through a reverse
with respect to the proposed rule
merger. Nasdaq will implement the
change that are filed with the
proposed rule for applications received
Commission, and all written
after approval.
communications relating to the
The text of the proposed rule change
proposed rule change between the
Commission and any person, other than is below. Proposed new language is in
italics; proposed deletions are in
those that may be withheld from the
brackets.3
public in accordance with the
provisions of 5 U.S.C. 552, will be
5110. Change of Control, Bankruptcy
available for website viewing and
and Liquidation, and Reverse Mergers
printing in the Commission’s Public
(a)–(b) No change
Reference Room, 100 F Street, NE.,
(c) Reverse Mergers between a Private
Washington, DC 20549, on official
Operating Company and a Public
business days between the hours of 10
Shell Company
a.m. and 3 p.m. Copies of the filing also
will be available for inspection and
17 17 CFR 200.30–3(a)(12).
copying at the principal office of the
1 15 U.S.C. 78s(b)(1).
Exchange. All comments received will
2 17 CFR 240.19b–4.
be posted without change; the
3 Changes are marked to the rule text that appears
Commission does not edit personal
in the electronic manual of Nasdaq found at https://
nasdaqomx.cchwallstreet.com.
identifying information from
VerDate Mar<15>2010
17:22 May 04, 2011
Jkt 223001
PO 00000
Frm 00068
Fmt 4703
Sfmt 4703
A Company that is formed by a
combination between a private
operating company and a public shell
company shall be eligible to submit an
application for initial listing only after
the combined entity has: (i) Traded for
at least six months in the over-thecounter market, on another national
securities exchange, or on a listed
foreign market, following the filing with
the Commission or Other Regulatory
Authority of audited financial
statements for the combined entity; and
(ii) maintained a Bid Price of $4 per
share or higher on at least 30 of the 60
trading days immediately preceding the
filing of the initial listing application.
In addition, such a company may
only be approved for listing if, following
the business combination, it has timely
filed: (i) In the case of a domestic issuer,
at least two required periodic financial
reports with the Commission or Other
Regulatory Authority; or (ii) in the case
of a Foreign Private Issuer, one or more
reports including financial statements
for a period not less than six months.
This Rule 5110(c) shall not apply if
the Company lists in connection with a
firm commitment, underwritten public
offering.
*
*
*
*
*
5210. Prerequisites for Applying to List
on The Nasdaq Stock Market
(a)–(h) No change
(i) Reverse Mergers between a Private
Operating Company and a Public
Shell Company
A security issued by a Company
formed by a combination between a
private operating company and a public
shell company shall be eligible for
initial listing only if the conditions set
forth in Rule 5110(c) are satisfied.
*
*
*
*
*
II. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
In its filing with the Commission,
Nasdaq 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. Nasdaq has prepared
summaries, set forth in Sections A, B,
and C below, of the most significant
aspects of such statements.
E:\FR\FM\05MYN1.SGM
05MYN1
Federal Register / Vol. 76, No. 87 / Thursday, May 5, 2011 / Notices
A. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
jlentini on DSKJ8SOYB1PROD with NOTICES
1. Purpose
In recent months there has been an
extraordinary level of public attention to
listed companies that went public via a
reverse merger, where an unlisted
operating company becomes a public
company by merging with a public
shell.4 The financial press, short sellers
and others have raised allegations of
widespread fraudulent behavior by
these companies, leading to concerns
that their financial statements cannot be
relied upon. Concerns have also been
raised that certain individuals who
aggressively promote these transactions
have significant regulatory histories or
have engaged in transactions that are
disproportionately beneficial to them at
the expense of public shareholders. The
Public Company Accounting Oversight
Board (‘‘PCAOB’’) has also identified
issues with the audits of these
companies and, in response, has issued
Staff Audit Practice Alert No. 6/July 12,
2010 and Staff Research Note #2011–P1/
March 2011, cautioning registered
accounting firms to follow certain
specified auditing practices. The SEC
recently took an enforcement action
based on a firm’s audit of a reverse
merger company.5 In addition, Nasdaq
is aware of situations where it appeared
that promoters and others intended to
manipulate prices higher to satisfy
Nasdaq’s initial listing bid price
requirement and where companies have,
for example, gifted stock to artificially
satisfy the 300 round lot public holder
requirement. Nasdaq does not list
companies in instances such as these,
where it appears the company has
achieved compliance with a
requirement in an inappropriate
manner.
In response to these concerns, Nasdaq
staff has, over the past year, adopted
heightened review procedures for
reverse merger applicants. However,
Nasdaq also believes that additional
requirements for listing reverse merger
companies are appropriate to discourage
inappropriate behavior on the part of
companies, promoters and others.
4 See, e.g., Beware This Chinese Expor, Barron’s
(August 28, 2010), available at https://
online.barrons.com/article/SB5000142405297020
4304404575449812943183940.html. See also
Speech by SEC Commissioner by Commissioner
Luis A. Aguilar: Facilitating Real Capital Formation
(April 4, 2011), available at https://www.sec.gov/
news/speech/2011/spch040411laa.htm. [sic]
5 In re Moore Stephens Wurth Frazer and Torbet,
Order Instituting Public Administrative and Ceaseand-Desist Proceedings, Securities Act Release No.
9166 (December 20, 2010).
VerDate Mar<15>2010
17:22 May 04, 2011
Jkt 223001
Accordingly, Nasdaq proposes to adopt
certain ‘‘seasoning’’ requirements for
reverse mergers.6
Specifically, Nasdaq proposes to
prohibit a company going public via a
reverse merger from applying to list
until six months after the combined
entity submits audited financial
statements to the SEC.7 Further, Nasdaq
proposes to require that the company
maintain a $4 bid price on at least 30
of the 60 trading days immediately prior
to submitting the application. Finally,
under the proposed rule, Nasdaq would
not approve any reverse merger for
listing until the company has filed at
least two financial reports with the SEC
if it is a domestic issuer (this could be
two quarterly filings or a quarterly and
an annual filing) or one financial report
covering at least a six month period if
it is a foreign private issuer (this could
be an interim report on Form 6–K or an
annual report on Form 20–F). While
most companies will satisfy this
requirement due to the six month delay
before they can apply, Nasdaq believes
that it is important to assure that this
requirement be satisfied in all cases.
Nasdaq believes that this proposal
will result in significant investor
protection benefits. Specifically, a six
month seasoning requirement will allow
FINRA more time to view trading
patterns and uncover potentially
manipulative trading.8 It will also result
in a more bona fide shareholder base
and assure that the $4 bid price was not
satisfied through a quick manipulative
scheme. Requiring additional SEC
filings will tend to improve the
reliability of the reported financial
results, since the auditors will have
reviewed several quarters, at least, of the
public company’s operating results, as
will the company’s audit committee. To
the extent the company had adopted
new internal controls at the time of the
merger, those too will have been in
place and able to exert a corrective
influence over any previous flaws in the
company’s financial reporting process.
6 Reverse
merger companies that list on Nasdaq
in conjunction with a firm commitment
underwritten public offering will not be subject to
the proposed rule. These transactions are more
similar to IPOs, in that the SEC reviews the
registration statement and the underwriters and
other experts are strictly liable under the federal
securities laws for any misstatements.
7 A company must file a Form 8–K within four
days of completing a reverse merger. The Form 8–
K must contain audited financial statements and
information comparable to the information
provided in a Form 10 for the registration of
securities. See Form 8–K Items 2.01, 5.06, and
9.01(c).
8 The Commission notes that FINRA has
regulatory authority over transactions in the overthe-counter market.
PO 00000
Frm 00069
Fmt 4703
Sfmt 4703
25731
2. Statutory Basis
Nasdaq believes that the proposed
rule change is consistent with the
provisions of Section 6 of the Act,9 in
general and with Section 6(b)(5) of the
Act,10 in particular in that it is 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. The
proposed rule change is designed to
enhance investor protection by
imposing additional requirements on a
category of companies that have raised
regulatory concerns.
B. Self-Regulatory Organization’s
Statement on Burden on Competition
Nasdaq does not believe that the
proposed rule change will result in any
burden on competition that is not
necessary or appropriate in furtherance
of the purposes of the Act, as amended.
C. Self-Regulatory Organization’s
Statement on Comments on the
Proposed Rule Change Received From
Members, Participants, or Others
Written comments were neither
solicited nor received.
III. Date of Effectiveness of the
Proposed Rule Change and Timing for
Commission Action
Within 45 days of the date of
publication of this notice in the Federal
Register or within such longer period (i)
as the Commission may designate up to
90 days of such date if it finds such
longer period to be appropriate and
publishes its reasons for so finding or
(ii) as to which the self-regulatory
organization consents, the Commission
will:
A. By order approve or disapprove such
proposed rule change, or
B. institute proceedings to determine
whether the proposed rule change
should be disapproved.
IV. Solicitation of Comments
Interested persons are invited to
submit written data, views, and
arguments concerning the foregoing,
including whether the proposed rule
change, as amended, is consistent with
9 15
U.S.C. 78f.
U.S.C. 78f(b)(5).
10 15
E:\FR\FM\05MYN1.SGM
05MYN1
25732
Federal Register / Vol. 76, No. 87 / Thursday, May 5, 2011 / Notices
the Act. Comments may be submitted by
any of the following methods:
SECURITIES AND EXCHANGE
COMMISSION
Electronic Comments
• Use the Commission’s Internet
comment form (https://www.sec.gov/
rules/sro.shtml); or
• Send an e-mail to rulecomments@sec.gov. Please include File
Number SR–NASDAQ–2011–056 on the
subject line.
[Release No. 34–64312; File No. SR–
NASDAQ–2011–053]
Self-Regulatory Organizations; The
NASDAQ Stock Market LLC; Notice of
Filing and Immediate Effectiveness of
Proposed Rule Change To Adopt an
Order Price Protection Feature
Paper Comments
• Send paper comments in triplicate
to Elizabeth M. Murphy, Secretary,
Securities and Exchange Commission,
100 F Street, NE., Washington, DC
20549–1090.
jlentini on DSKJ8SOYB1PROD with NOTICES
All submissions should refer to File
Number SR–NASDAQ–2011–056. This
file number should be included on the
subject line if e-mail is used. To help the
Commission process and review your
comments more efficiently, please use
only one method. The Commission will
post all comments on the Commission’s
Internet website (https://www.sec.gov/
rules/sro.shtml). Copies of the
submission, all subsequent
amendments, all written statements
with respect to the proposed rule
change that are filed with the
Commission, and all written
communications relating to the
proposed rule change between the
Commission and any person, other than
those that may be withheld from the
public in accordance with the
provisions of 5 U.S.C. 552, will be
available for website viewing and
printing in the Commission’s Public
Reference Room on official business
days between the hours of 10 a.m. and
3 p.m. Copies of such filing also will be
available for inspection and copying at
the principal office of Nasdaq. All
comments received will be posted
without change; the Commission does
not edit personal identifying
information from submissions. You
should submit only information that
you wish to make available publicly. All
submissions should refer to File
Number SR–NASDAQ–2011–056, and
should be submitted on or before May
26, 2011.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.11
Cathy H. Ahn,
Deputy Secretary.
[FR Doc. 2011–10936 Filed 5–4–11; 8:45 am]
BILLING CODE 8011–01–P
11 17
CFR 200.30–3(a)(12).
VerDate Mar<15>2010
20:40 May 04, 2011
Jkt 223001
Correction
In notice document 2011–9971
appearing on pages 23351–23352 in the
issue of Tuesday, April 26, 2011, make
the following correction:
On page 23352, in the second column,
in the last line ‘‘May 16, 2011’’ should
read ‘‘May 17, 2011’’.
[FR Doc. C1–2011–9971 Filed 5–4–11; 8:45 am]
BILLING CODE 1505–01–D
SECURITIES AND EXCHANGE
COMMISSION
[File No. 500–1]
Order of Suspension of Trading; In the
Matter of Advanced Refractive
Technologies, Inc., Bluebook
International Holding Co. (The),
CBCom, Inc., Gener8xion
Entertainment, Inc., Group Long
Distance Inc., HiEnergy Technologies,
Inc., and Holter Technologies Holding,
A.G. (n/k/a International Consortium
Corp.)
It appears to the Securities and
Exchange Commission that there is a
lack of current and accurate information
concerning the securities of Advanced
Refractive Technologies, Inc. because it
has not filed any periodic reports since
the period ended September 30, 2006.
It appears to the Securities and
Exchange Commission that there is a
lack of current and accurate information
concerning the securities of Bluebook
International Holding Co. (The) because
it has not filed any periodic reports
since the period ended December 31,
2005.
It appears to the Securities and
Exchange Commission that there is a
lack of current and accurate information
concerning the securities of CBCom, Inc.
because it has not filed any periodic
reports since the period ended
September 30, 2002.
It appears to the Securities and
Exchange Commission that there is a
lack of current and accurate information
concerning the securities of Gener8xion
Entertainment, Inc. because it has not
filed any periodic reports since the
period ended April 30, 2008.
It appears to the Securities and
Exchange Commission that there is a
PO 00000
Frm 00070
Fmt 4703
Sfmt 4703
lack of current and accurate information
concerning the securities of Group Long
Distance Inc. because it has not filed
any periodic reports since the period
ended July 31, 2001.
It appears to the Securities and
Exchange Commission that there is a
lack of current and accurate information
concerning the securities of HiEnergy
Technologies, Inc. because it has not
filed any periodic reports since the
period ended October 31, 2006.
It appears to the Securities and
Exchange Commission that there is a
lack of current and accurate information
concerning the securities of Holter
Technologies Holding, A.G. (n/k/a
International Consortium Corp.) because
it has not filed any periodic reports
since the period ended September 30,
2000.
The Commission is of the opinion that
the public interest and the protection of
investors require a suspension of trading
in the securities of the above-listed
companies. Therefore, it is ordered,
pursuant to Section 12(k) of the
Securities Exchange Act of 1934, that
trading in the securities of the abovelisted companies is suspended for the
period from 9:30 a.m. EDT on May 3,
2011, through 11:59 p.m. EDT on May
16, 2011.
By the Commission.
Jill M. Peterson,
Assistant Secretary.
[FR Doc. 2011–11090 Filed 5–3–11; 4:15 pm]
BILLING CODE 8011–01–P
SMALL BUSINESS ADMINISTRATION
[License No. 09/79–0454]
Emergence Capital Partners SBIC,
L.P.; Notice Seeking Exemption Under
Section 312 of the Small Business
Investment Act, Conflicts of Interest
Notice is hereby given that Emergence
Capital Partners SBIC, L.P., 160 Bovet
Road, Suite 300, San Mateo, CA 94402,
a Federal Licensee under the Small
Business Investment Act of 1958, as
amended (‘‘the Act’’), in connection with
the financing of a small concern, has
sought an exemption under Section 312
of the Act and Section 107.730,
Financings which Constitute Conflicts
of Interest of the Small Business
Administration (‘‘SBA’’) Rules and
Regulations (13 CFR 107.730).
Emergence Capital Partners SBIC, L.P.
proposes to provide equity financing to
PivotLink, Inc., 15325 SE. 30th Place,
Suite 300, Bellevue, WA 98007. The
financing is contemplated for working
capital and general operating purposes.
E:\FR\FM\05MYN1.SGM
05MYN1
Agencies
[Federal Register Volume 76, Number 87 (Thursday, May 5, 2011)]
[Notices]
[Pages 25730-25732]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2011-10936]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-64371; File No. SR-NASDAQ-2011-056]
Self-Regulatory Organizations; The NASDAQ Stock Market LLC;
Notice of Filing of Proposed Rule Change to Adopt Additional Listing
Requirements for Reverse Mergers
April 29, 2011.
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 April 18, 2011, The NASDAQ Stock Market LLC (``Nasdaq'') filed with
the Securities and Exchange Commission (``Commission'') the proposed
rule change as described in Items I and II below, which Items have been
substantially prepared by Nasdaq. The Commission is publishing this
notice to solicit comments on the proposed rule change from interested
persons.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------
I. Self-Regulatory Organization's Statement of the Terms of the
Substance of the Proposed Rule Change
Nasdaq proposes to adopt additional listing requirements for a
company that has become public through a reverse merger. Nasdaq will
implement the proposed rule for applications received after approval.
The text of the proposed rule change is below. Proposed new
language is in italics; proposed deletions are in brackets.\3\
---------------------------------------------------------------------------
\3\ Changes are marked to the rule text that appears in the
electronic manual of Nasdaq found at https://nasdaqomx.cchwallstreet.com.
---------------------------------------------------------------------------
5110. Change of Control, Bankruptcy and Liquidation, and Reverse
Mergers
(a)-(b) No change
(c) Reverse Mergers between a Private Operating Company and a Public
Shell Company
A Company that is formed by a combination between a private
operating company and a public shell company shall be eligible to
submit an application for initial listing only after the combined
entity has: (i) Traded for at least six months in the over-the-counter
market, on another national securities exchange, or on a listed foreign
market, following the filing with the Commission or Other Regulatory
Authority of audited financial statements for the combined entity; and
(ii) maintained a Bid Price of $4 per share or higher on at least 30 of
the 60 trading days immediately preceding the filing of the initial
listing application.
In addition, such a company may only be approved for listing if,
following the business combination, it has timely filed: (i) In the
case of a domestic issuer, at least two required periodic financial
reports with the Commission or Other Regulatory Authority; or (ii) in
the case of a Foreign Private Issuer, one or more reports including
financial statements for a period not less than six months.
This Rule 5110(c) shall not apply if the Company lists in
connection with a firm commitment, underwritten public offering.
* * * * *
5210. Prerequisites for Applying to List on The Nasdaq Stock Market
(a)-(h) No change
(i) Reverse Mergers between a Private Operating Company and a Public
Shell Company
A security issued by a Company formed by a combination between a
private operating company and a public shell company shall be eligible
for initial listing only if the conditions set forth in Rule 5110(c)
are satisfied.
* * * * *
II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, Nasdaq 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. Nasdaq has prepared summaries, set forth in Sections A,
B, and C below, of the most significant aspects of such statements.
[[Page 25731]]
A. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
1. Purpose
In recent months there has been an extraordinary level of public
attention to listed companies that went public via a reverse merger,
where an unlisted operating company becomes a public company by merging
with a public shell.\4\ The financial press, short sellers and others
have raised allegations of widespread fraudulent behavior by these
companies, leading to concerns that their financial statements cannot
be relied upon. Concerns have also been raised that certain individuals
who aggressively promote these transactions have significant regulatory
histories or have engaged in transactions that are disproportionately
beneficial to them at the expense of public shareholders. The Public
Company Accounting Oversight Board (``PCAOB'') has also identified
issues with the audits of these companies and, in response, has issued
Staff Audit Practice Alert No. 6/July 12, 2010 and Staff Research Note
2011-P1/March 2011, cautioning registered accounting firms to
follow certain specified auditing practices. The SEC recently took an
enforcement action based on a firm's audit of a reverse merger
company.\5\ In addition, Nasdaq is aware of situations where it
appeared that promoters and others intended to manipulate prices higher
to satisfy Nasdaq's initial listing bid price requirement and where
companies have, for example, gifted stock to artificially satisfy the
300 round lot public holder requirement. Nasdaq does not list companies
in instances such as these, where it appears the company has achieved
compliance with a requirement in an inappropriate manner.
---------------------------------------------------------------------------
\4\ See, e.g., Beware This Chinese Expor, Barron's (August 28,
2010), available at https://online.barrons.com/article/SB50001424052970204304404575449812943183940.html. See also Speech by
SEC Commissioner by Commissioner Luis A. Aguilar: Facilitating Real
Capital Formation (April 4, 2011), available at https://www.sec.gov/news/speech/2011/spch040411laa.htm. [sic]
\5\ In re Moore Stephens Wurth Frazer and Torbet, Order
Instituting Public Administrative and Cease-and-Desist Proceedings,
Securities Act Release No. 9166 (December 20, 2010).
---------------------------------------------------------------------------
In response to these concerns, Nasdaq staff has, over the past
year, adopted heightened review procedures for reverse merger
applicants. However, Nasdaq also believes that additional requirements
for listing reverse merger companies are appropriate to discourage
inappropriate behavior on the part of companies, promoters and others.
Accordingly, Nasdaq proposes to adopt certain ``seasoning''
requirements for reverse mergers.\6\
---------------------------------------------------------------------------
\6\ Reverse merger companies that list on Nasdaq in conjunction
with a firm commitment underwritten public offering will not be
subject to the proposed rule. These transactions are more similar to
IPOs, in that the SEC reviews the registration statement and the
underwriters and other experts are strictly liable under the federal
securities laws for any misstatements.
---------------------------------------------------------------------------
Specifically, Nasdaq proposes to prohibit a company going public
via a reverse merger from applying to list until six months after the
combined entity submits audited financial statements to the SEC.\7\
Further, Nasdaq proposes to require that the company maintain a $4 bid
price on at least 30 of the 60 trading days immediately prior to
submitting the application. Finally, under the proposed rule, Nasdaq
would not approve any reverse merger for listing until the company has
filed at least two financial reports with the SEC if it is a domestic
issuer (this could be two quarterly filings or a quarterly and an
annual filing) or one financial report covering at least a six month
period if it is a foreign private issuer (this could be an interim
report on Form 6-K or an annual report on Form 20-F). While most
companies will satisfy this requirement due to the six month delay
before they can apply, Nasdaq believes that it is important to assure
that this requirement be satisfied in all cases.
---------------------------------------------------------------------------
\7\ A company must file a Form 8-K within four days of
completing a reverse merger. The Form 8-K must contain audited
financial statements and information comparable to the information
provided in a Form 10 for the registration of securities. See Form
8-K Items 2.01, 5.06, and 9.01(c).
---------------------------------------------------------------------------
Nasdaq believes that this proposal will result in significant
investor protection benefits. Specifically, a six month seasoning
requirement will allow FINRA more time to view trading patterns and
uncover potentially manipulative trading.\8\ It will also result in a
more bona fide shareholder base and assure that the $4 bid price was
not satisfied through a quick manipulative scheme. Requiring additional
SEC filings will tend to improve the reliability of the reported
financial results, since the auditors will have reviewed several
quarters, at least, of the public company's operating results, as will
the company's audit committee. To the extent the company had adopted
new internal controls at the time of the merger, those too will have
been in place and able to exert a corrective influence over any
previous flaws in the company's financial reporting process.
---------------------------------------------------------------------------
\8\ The Commission notes that FINRA has regulatory authority
over transactions in the over-the-counter market.
---------------------------------------------------------------------------
2. Statutory Basis
Nasdaq believes that the proposed rule change is consistent with
the provisions of Section 6 of the Act,\9\ in general and with Section
6(b)(5) of the Act,\10\ in particular in that it is 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. The proposed rule change is
designed to enhance investor protection by imposing additional
requirements on a category of companies that have raised regulatory
concerns.
---------------------------------------------------------------------------
\9\ 15 U.S.C. 78f.
\10\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------
B. Self-Regulatory Organization's Statement on Burden on Competition
Nasdaq does not believe that the proposed rule change will result
in any burden on competition that is not necessary or appropriate in
furtherance of the purposes of the Act, as amended.
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others
Written comments were neither solicited nor received.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
Within 45 days of the date of publication of this notice in the
Federal Register or within such longer period (i) as the Commission may
designate up to 90 days of such date if it finds such longer period to
be appropriate and publishes its reasons for so finding or (ii) as to
which the self-regulatory organization consents, the Commission will:
A. By order approve or disapprove such proposed rule change, or
B. institute proceedings to determine whether the proposed rule change
should be disapproved.
IV. Solicitation of Comments
Interested persons are invited to submit written data, views, and
arguments concerning the foregoing, including whether the proposed rule
change, as amended, is consistent with
[[Page 25732]]
the Act. Comments may be submitted by any of the following methods:
Electronic Comments
Use the Commission's Internet comment form (https://www.sec.gov/rules/sro.shtml); or
Send an e-mail to rule-comments@sec.gov. Please include
File Number SR-NASDAQ-2011-056 on the subject line.
Paper Comments
Send paper comments in triplicate to Elizabeth M. Murphy,
Secretary, Securities and Exchange Commission, 100 F Street, NE.,
Washington, DC 20549-1090.
All submissions should refer to File Number SR-NASDAQ-2011-056. This
file number should be included on the subject line if e-mail is used.
To help the Commission process and review your comments more
efficiently, please use only one method. The Commission will post all
comments on the Commission's Internet website (https://www.sec.gov/rules/sro.shtml). Copies of the submission, all subsequent amendments,
all written statements with respect to the proposed rule change that
are filed with the Commission, and all written communications relating
to the proposed rule change between the Commission and any person,
other than those that may be withheld from the public in accordance
with the provisions of 5 U.S.C. 552, will be available for website
viewing and printing in the Commission's Public Reference Room on
official business days between the hours of 10 a.m. and 3 p.m. Copies
of such filing also will be available for inspection and copying at the
principal office of Nasdaq. All comments received will be posted
without change; the Commission does not edit personal identifying
information from submissions. You should submit only information that
you wish to make available publicly. All submissions should refer to
File Number SR-NASDAQ-2011-056, and should be submitted on or before
May 26, 2011.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\11\
---------------------------------------------------------------------------
\11\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------
Cathy H. Ahn,
Deputy Secretary.
[FR Doc. 2011-10936 Filed 5-4-11; 8:45 am]
BILLING CODE 8011-01-P