As described in our client alert, “Updates to SEC Guidance on Shareholder Meetings and Filing Deadlines; NYSE and Nasdaq Provide Temporary Suspension of Continued Listing Requirements,” in response to the COVID-19 pandemic, and the resulting related market conditions, Nasdaq filed with the SEC an amendment to its rules, effective immediately, providing temporary relief from the continued listing bid price and market value of publicly held shares listing requirements (the “Temporary Relief”) by tolling compliance through June 30, 2020 (the “Tolling Period”).
Listing Bid Price Temporary Relief
The Nasdaq rules impacted by the Temporary Relief that pertain to the bid price are rules 5450(a)(1), 5460(a)(3), 5550(a)(2), and 5555(a)(1). These rules set forth a $1 minimum bid price, for a company’s listed shares. Companies that have shares trade below $1 for 30 consecutive days will generally receive a deficiency letter from the Nasdaq and be given a 180-day period in which to regain compliance, subject to certain extensions and appeals.
Market Value of Publicly Held Shares Temporary Relief
The Nasdaq rules impacted by the Temporary Relief that pertain to the market value of publicly held shares are rules 5450(b)(1)(C), 5450(b)(2)(C), 5450(b)(3)(C), 5460(a)(2), 5550(a)(5), and 5555(a)(4). These rules set forth, with amounts varying depending on the Nasdaq tier upon which the company’s stock is listed for trading, the minimum (i) stockholders' equity, (ii) market value of unrestricted publicly held shares (i.e., those not held by affiliates or a company’s insiders, such as officers and directors), (iii) number and value of publicly held shares; and (iv) the number of active market makers. Companies that do not meet the applicable market value criteria for 30 consecutive days will generally receive a deficiency letter from the Nasdaq and be given a 180-day period in which to regain compliance, subject to certain extensions and appeals, similar to the bid price rules described above.
Why Nasdaq is Implementing the Temporary Relief
Nasdaq recognizes that the fallout from the COVID-19 pandemic has resulted in depressed trading prices for companies that otherwise remain suitable for continued listing. In its filing with the SEC to effect the Temporary Relief, Nasdaq outlined a few substantive reasons as to why it sought to provide companies with the Temporary Relief.
Among the reasons stated, Nasdaq stated that it believes that it would be difficult for companies that are already non-compliant with the aforementioned requirements to take action to regain compliance given the pandemic. Nasdaq pointed to the large daily market moves that it has seen as an aspect making it more challenging for a company to predict what ratio may be required for a reverse stock split that will enable the company to achieve and maintain compliance with the bid price requirement. In addition, in the filing with the SEC, Nasdaq advised the SEC that requiring companies to regain compliance, without the Temporary Relief, would require management and board attention, which, at this time, should be focused on the more immediate needs of their employees and customers, as well as the communities in which they operate.
What Happens During and After the Tolling Period?
During the Tolling Period, although Nasdaq won’t be starting the timeline for meeting compliance standards in accordance with its listing rules, Nasdaq will continue to monitor the bid price and market value of publicly held shares requirements and companies would continue to be notified about new instances of noncompliance in accordance with the current rules. The Temporary Relief provided by the Tolling Period is applicable for any company not currently in compliance with the minimum bid price and/or market value of publicly held shares requirements, including those that are already in the midst of a Nasdaq hearing process due to extended noncompliance, and not solely for companies that have failed to meet these requirements after the declaration of COVID-19 being a pandemic.
Pursuant to the Temporary Relief, companies that were in the Nasdaq hearings process due to noncompliance with the bid price or market value list standards would return to that process at the same stage they were in when the tolling period began. However, Nasdaq’s filing with the SEC states that a company in the hearings process would nonetheless be delisted and not get the benefit of the Tolling Period if the company has had an oral or written hearing before a hearing panel and such panel has reached a determination to delist, even if the Hearings Panel has not issued the written decision required by Nasdaq rules prior to the effective date of the Temporary Relief.
Immediately after the Tolling Period, starting on July 1, 2020, in accordance with Nasdaq’s notice relating to the Temporary Relief, companies will receive the balance of any pending compliance period or hearings panel exception to regain compliance with the applicable requirement. Nasdaq has stated that it will continue to monitor securities to determine if they regain compliance during the relief period. The Temporary Relief essentially freezes the 180-day compliance period from April 16 through the duration of the Tolling Period. However many days were left for a company to comply at April 16th will still be allowed following June 30th. For example, if as of April 16th, a company had 30 days left before its 180-day compliance period ended, or until May 16th, the Tolling Period would allow that company until July 30th to comply instead.
