Publications

---

The New NASDAQ Listing Rulebook

NASDAQ’s previously announced changes to its company listing rules will take effect on Monday, April 13, 2009. Although NASDAQ has represented that it is not making any substantive changes to the listing rules through these changes, certain rule text was amended to clarify the current application of existing rules. In addition, the listing rules have been completely reorganized and the 4000 Series of the Marketplace Rules has been restated in the new 5000 Series (which was previously unused).

NASDAQ believes the reorganized rules are in a more transparent and reader-friendly format.

Select Changes

Some notable changes include:

• grouping quantitative requirements related to a particular market tier (Global Select Market, Global Market and Capital Market) in individual sections (the 5300, 5400 and 5500 Series);
• creating a separate series (the 5600 Series) dedicated to corporate governance rules (most of which are currently contained in Rule 4350);
• creating additional defined terms; and
• adding descriptive language to rule citations to give better context to readers.

NASDAQ created, modified or deleted several defined terms as part of its listing rules reorganization. Among the created terms are “Bid Price,” which has been used in the listing rules historically and understood to mean the closing bid price but was not previously defined--the listing rules now clarify that it is in fact the closing bid price; “Publicly Held Shares,” which means shares not held directly or indirectly by an officer, director or any person who is the beneficial owner of more than 10 percent of the total shares outstanding; “Substantial Shareholder,” which refers to shareholders that have an interest of either 5 percent or more of the number of shares of common stock or 5 percent or more of the voting power outstanding of a company or party; and “Executive Officer,” which means covered officers for purposes of Section 16 of the Securities Exchange Act of 1934 (Exchange Act).

Another example of the way NASDAQ has clarified the current application of existing rules in the new listing rules is in new Rule 5110(b). Currently, Rule 4340(b) details NASDAQ’s discretionary authority to delist a company should it file for bankruptcy protection and Rule 4450(f) restates such authority with respect to Global Market companies and adds that NASDAQ may also delist such a company after it announces that liquidation has been authorized by its board. NASDAQ has had a long standing practice to exercise its discretionary authority to delist a company from any market tier should the company’s board authorize its liquidation. New Rule 5110(b) combines Rules 4340(b) and 4450(f) and makes clear that any listed company, regardless of which market tier it is listed on, may be delisted should it announce that its board has determined to liquidate the company.

The bulleted list below is a quick reference guide to the new 5000 Series. Please note that NASDAQ has left in the 4000 Series certain rules it believes do not relate to the listing of company securities. In addition, please note that within the 5300, 5400 and 5500 Series, the rules have been organized in a manner such that the rules applicable to initial listing requirements range from 01 to 49 (e.g., 5405 to 5415 contains all Global Market initial listing rules) and the rules applicable to continued listing requirements range from 50 to 99.

• 5000 Series – general definitions used throughout the listing rules
• 5100 Series – description of the scope and use of NASDAQ’s discretionary authority
• 5200 Series – qualitative listing requirements (applicable to all market tiers)
• 5300 Series – quantitative initial and continued listing requirements for the NASDAQ Global Select Market
• 5400 Series – quantitative initial and continued listing requirements for the NASDAQ Global Market
• 5500 Series – quantitative initial and continued listing requirements for the NASDAQ Capital Market
• 5600 Series – corporate governance rules (contains most of the current Rule 4350 requirements)
• 5700 Series – requirements for listing other securities (structured products and non-traditional securities)
• 5800 Series – requirements and processes relating to companies that fail to meet a listing standard
• 5900 Series – fees required to be paid for listing on NASDAQ

NASDAQ has posted the new listing rules and a reference table which maps the existing rule citations to the new listing rules and includes a description of any changes. The reference table is a helpful tool for those familiar with the existing rules to locate the equivalent in the new 5000 Series.

Other NASDAQ Updates

On April 8, 2009, NASDAQ held a web seminar (click here for the slide presentation) during which it provided an update on recent and upcoming rule changes. Although NASDAQ expects to file the proposals noted below over the next few weeks, the extent and timing of Securities and Exchange Commission (SEC) approval of such proposals and the timing of the effectiveness of any so approved proposals is uncertain.

Bid Price and Market Value of Publicly Held Shares Suspension

Beginning in October 2008, noting the extensive turmoil in the market, NASDAQ suspended the application of its $1 bid price and the market value of publicly held shares requirements. This suspension has been extended twice by NASDAQ and the requirements are currently scheduled to be reinstated on July 20, 2009 (see our Corporate Governance Alert of April 1, 2009 for more information). NASDAQ staff has said it is monitoring the state of the markets and, if conditions remain unchanged, NASDAQ will seek to extend the suspension again.

Compliance Process and Grace Periods

Currently, continued listing compliance requirements regarding minimum bid price, market value of publicly held shares and market value of listed securities each provide different compliance periods before a listed company is considered non-compliant (30, 10 and 30 consecutive business days, respectively). Each of these listing compliance requirements also provide for different periods in which to regain compliance before the delisting process commences (180, 90 and 90 calendar days from NASDAQ notification date, respectively), even though compliance with each such requirement is tied, in part, to the price of the listed security. See new Rules 5810(c)(3)(A), (C) and (D).

In recognition of these inconsistencies and the fact that the current economic environment has highlighted that the rules may not provide sufficient periods in which to regain compliance, NASDAQ will propose changes to these periods. NASDAQ will propose that, in order to fall out of compliance, a listed company’s security would have to be below the applicable requirement for a period of 30 consecutive trading days and would have a period of 180 calendar days to regain compliance. In addition, with respect to the bid price requirement, NASDAQ will propose allowing Global Select Market and Global Market listed companies to remain on those market tiers, rather than transferring to the Capital Market, for a second 180-calendar-day compliance period if they meet all continued listing requirement for that market tier, other than the bid price requirement.

Current NASDAQ listing requirements provide a listed company with 15 days from NASDAQ's notification to submit a plan to NASDAQ to regain compliance with the stockholders equity requirements, and NASDAQ staff has authority to extend the compliance period to up to 105 days from the date of initial notification. NASDAQ will propose changing these requirements to conform them to the time periods in the late filing rules. The proposed changes would give listed companies 60 days to submit a plan to regain compliance and would give authority to the NASDAQ staff to grant an extension of up to 180 days from the date of initial notification for a listed company to regain compliance.

Closing Price May Replace Bid Price for Certain Calculations

Currently, compliance with several of NASDAQ’s continued listing requirements is calculated using the closing bid price (e.g., minimum price requirement, market value of public float requirement and market value of listed securities requirement). NASDAQ recognizes that the closing bid price is not as easy to find as the closing sale price, making compliance determinations difficult for listed companies and investors. NASDAQ will be proposing rule changes to use the NASDAQ Official Closing Price (NOCP) to determine compliance with market-based listing requirements. The NOCP is the 4:00 p.m. Eastern closing price and is available on NASDAQ’s website daily just after 4:00 p.m. Eastern.

Press Release Disclosure

NASDAQ rules require listed companies to publicly disclose material news and permit them to make this disclosure through any method that complies with Regulation FD. However, NASDAQ rules still require a press release in certain circumstances, including several where SEC rules require a Form 8-K or Form 6-K (e.g., receipt of a delisting determination or public reprimand letter; interim results by foreign private issuers). NASDAQ will propose eliminating the duplicate press release requirement and allowing listed companies to satisfy the NASDAQ public disclosure requirement through the filing of Forms 8-K or 6-K, where required.

Late Filings Rule Change

In October 2008, NASDAQ significantly modified its rules related to listed companies that fail to timely file periodic reports and foreign private issuers that fail to timely file interim financial information to allow those companies 60 calendar days to provide a plan to regain compliance. This modification also gives the NASDAQ staff authority to grant an extension of up to 180 calendar days from the due date of the first late periodic report (as extended by Rule 12b-25 under the Exchange Act, if applicable). See new listing Rule 5810(c)(2)(F).

NASDAQ staff noted that it made these changes to put its process more in line with that of the New York Stock Exchange and that now the biggest difference from the NYSE in this area is enforcement of quarterly filing deadlines. NASDAQ staff also stated that the SEC has recognized this disparity and is working to establish a uniform rule.

Form 20-F Disclosure

Currently, NASDAQ rules permit foreign private issuers to follow their home country practice in lieu of certain NASDAQ corporate governance requirements, provided they disclose when they do so, either in their annual reports or on their websites.

To align its rules with SEC requirements, NASDAQ will propose modifying its rules to require that Form 20-F filers disclose in their Form 20-Fs all NASDAQ corporate governance requirements that they do not follow. NASDAQ will encourage Form 20-F filers to continue to post the differences on their website if that has been their past practice.

Shareholder Approval Issues

NASDAQ staff reminded listed companies that with stock prices down, shareholder approval may be required for a larger number of private placements than before the economic crisis. The NASDAQ listing rules require that a listed company obtain shareholder approval when a private placement issuance equals 20 percent or more of the pre-transaction outstanding shares and the transaction price per share is less than the greater of book or market value. NASDAQ calculates book value by taking the shareholders’ equity amount listed in the listed company’s most recent periodic filing and dividing it by the number of its outstanding shares.

The NASDAQ rules provide an exception to the shareholder approval requirements when the delay in obtaining shareholder approval would “seriously jeopardize the financial viability” of the company. Current Rule 4350(i)(2) and new Rule 5635(f) contain the financial viability exception. Use of this exception requires prior application to NASDAQ, express approval of the company’s reliance on the exception by its audit committee, and 10-day prior notice of the company’s reliance on the exception to its shareholders. For additional information regarding NASDAQ’s financial viability exception, including examples of companies that have relied upon the exception, please see our July 2008 article, How to Do a Deal Without Shareholder Approval: The Financial Viability Exception, available here.