In light of the continued market uncertainty caused by the novel coronavirus (COVID-19) pandemic, The Nasdaq Stock Market LLC (Nasdaq) and the New York Stock Exchange (NYSE) have tolled compliance periods for certain of their price-based continued listing requirements. In addition, the NYSE has provided temporary relief from the application of its proxy delivery requirements.
Nasdaq Tolls Compliance Period for Price-Based Requirements
On April 17, the U.S. Securities and Exchange Commission (SEC) approved the immediate effectiveness of Nasdaq's proposal to provide a longer period of time for companies to regain compliance with Nasdaq's bid price and market value of publicly held shares continued listing requirements.
Generally, companies that do not meet the applicable bid price or the market value of publicly held shares continued listing requirements, in either case, for a period of 30 consecutive days, will be notified by Nasdaq and will have 180 calendar days to regain compliance.1 In light of the issues that some companies are facing as a result of the COVID-19 pandemic, Nasdaq has provided the following temporary relief:
- Companies in Existing Compliance Periods. For Nasdaq-listed companies that are currently in compliance periods, Nasdaq tolled the compliance period through and including June 30, 2020. For example, if a company is 90 days into its 180-day compliance period when the tolling period starts, then commencing on July 1, 2020, the company would have an additional 90 days to regain compliance.
- New Compliance Issues During Tolling Period. Nasdaq will continue to monitor compliance with the bid price and market value of publicly held shares continued listing requirements during the tolling period. Any Nasdaq-listed companies falling out of compliance during the tolling period will be notified by Nasdaq of such non-compliance and will be required to disclose receipt of this notification by filing a Form 8-K, where required by SEC rules, or by issuing a press release.2 However, the compliance period for these companies to regain compliance will not commence until July 1, 2020.
- Companies in Hearings Process. Companies that were involved in the hearings process before a Nasdaq Hearings Panel will return to the same stage of the hearings process that they were in when the tolling period began. If a company received an exception from a Hearing Panel permitting more time for the company to regain compliance, then this time would be tolled through and including June 30, 2020, and the company would receive the remainder of the exception period starting on July 1, 2020.
Notably, in October 2008, Nasdaq suspended the bid price and market value of publicly held shares continued listing requirements through January 16, 2009, and extended this suspension through April 19, 2009. Thus, because these listing requirements were suspended rather than tolled, companies were not notified or cited for any new bid price or market value of publicly held shares deficiencies during the suspension period. Companies already in a compliance period for failure to comply with these price-based listing requirements were able to toll their compliance periods until the end of the suspension period.
NYSE Tolls Compliance Period for $50 Million and Dollar Price Standards
On April 21, the SEC approved the immediate effectiveness of the NYSE's proposal to provide a longer period of time for companies to regain compliance with the following NYSE continued listing standards. NYSE-listed companies will be considered below compliance if 1) their average global market capitalization over a consecutive 30 trading day period is less than $50 million and, at the same time, stockholders' equity is less than $50 million or 2) the average closing price of their securities is less than $1.00 over a consecutive thirty trading day period.3 Generally, companies that do not meet the $50 million standard or the dollar price standard will be notified by the NYSE and will have 18 months or six months, respectively, to regain compliance.4
In light of the foregoing, the NYSE has provided the following temporary relief from the $50 million standard and the dollar price standard:
- Companies in Existing Compliance Periods. For NYSE-listed companies that are currently in compliance periods, the NYSE tolled the compliance period through and including June 30, 2020.
- New Compliance Issues During Tolling Period. The NYSE will continue to monitor compliance during the tolling period. Any NYSE-listed companies falling out of compliance during the tolling period will be notified by the NYSE of such non-compliance, will be required to meet the applicable press release requirements,5 and, where applicable, will be required to file a Form 8-K. However, the applicable compliance period for these companies to regain compliance will not commence until July 1, 2020.
Notwithstanding the tolling periods discussed above, companies in a compliance period for non-compliance with the $50 million standard will continue to be required to submit compliance plans within the applicable time frames set forth in Sections 802.02 and 802.03 of the NYSE Listed Company Manual, and the NYSE will continue to review the progress under those plans on a quarterly basis.
Notably, in March 2009, the NYSE suspended the dollar price standard through June 30, 2009, and extended this suspension through July 31, 2009. Thus, because this standard was suspended rather than tolled, companies were not notified or cited for any new events of noncompliance with the dollar price standard. Companies already in a compliance period for being below compliance with the dollar price standard were able to toll their compliance periods until the end of the suspension period.
In addition to tolling the compliance periods for the $50 million standard and the dollar price standard, the NYSE previously suspended until June 30, 2020, the application of its continued listing requirement that companies maintain an average global market capitalization over a consecutive 30 trading day period of at least $15 million.6 Generally, once a company is identified as noncompliant with this standard, trading in its shares is immediately suspended and the company is subject to delisting. During this relief period, companies will not be notified of any new events of noncompliance with this continued listing standard and any new events of noncompliance will be determined based on a consecutive 30 trading day period commencing on or after July 1, 2020. For more information, please see our prior Alert.
NYSE Provides Temporary Relief from Application of Proxy Delivery Requirements
On April 23, 2020, the SEC approved the immediate effectiveness of the NYSE proposal to modify the application of Rule 451(b)(1) of the NYSE Listed Company Manual. Rule 451(b)(1) generally does not permit NYSE member organizations (for example, brokers) to vote uninstructed shares on "routine" matters unless that member organization has transmitted the applicable proxy and voting materials to the beneficial owner of those shares at least 15 calendar days prior to the shareholder meeting.
Most investors in public companies hold their shares in an account with a member organization, such as a brokerage firm, in "street name." Investors that hold their shares in "street name" are considered the beneficial owners, rather than the record holders, of those shares, and receive proxy and voting materials for shareholder meetings from the broker, rather than directly from the company. NYSE Rule 452 permits brokers to submit votes on "routine" matters without voting instructions from the beneficial owner if 1) the beneficial owner has not provided voting instructions to the broker and 2) the requirements of NYSE Rule 451 are met, including the 15-calendar day delivery requirement discussed above. As long as companies have one "routine" matter to be voted upon at the shareholder meeting (in the case of the annual meeting, this is typically an advisory vote to ratify the selection of the independent auditor), these brokers can submit votes for the "routine" matter, which will count toward the overall quorum for the meeting. Without these votes, some public companies may struggle to reach a quorum for their shareholder meetings.
In its proposal, the NYSE notes that the primary intermediary for these brokers notified the NYSE that it is having difficulty meeting this 15-day delivery requirement due to delays in receiving printed materials from companies and also due to its own reduced staffing levels caused by COVID-19. If brokers are unable to vote on "routine" matters, then companies may find it difficult to reach a quorum for their annual meetings.
Thus, the NYSE has provided temporary relief from the application of Rule 451(b)(1) for shareholder meetings occurring on or before May 31, 2020. Specifically, during this relief period, brokers will be permitted to vote uninstructed shares "as long as proxy materials are transmitted to beneficial owners no later than 10 days prior to the shareholder meeting, rather than the fifteen day period required by the text of the rule." [Emphasis added.]
In its proposal, the NYSE stated that it "expects that best efforts will be made to ensure that transmissions of proxy materials will continue to be made prior to the fifteenth day before the meeting whenever possible, either in whole or in part." In particular, it expects "electronic transmissions of proxy materials to continue to be made within the normal time frames provided by the rule."
In addition, the NYSE imposed certain conditions on this relief. The intermediary acting as agent for the brokers and banks "will be required to post prominently on its website the following disclosures:
- that it is experiencing operational challenges as a result of the disruptive effects of COVID-19 and is therefore experiencing difficulty in some cases in transmitting proxy materials to beneficial owners at least 15 days prior to shareholder meeting dates;
- as a consequence, it is relying on relief provided by the NYSE to shorten from 15 days to 10 days the period required under Rule 451(b)(1) that proxy materials must be transmitted to beneficial owners in order for the member organization to be permitted to vote its customers' uninstructed shares on routine matters;
- a list of the companies whose proxy distributions are affected, including the meeting date and the date on which the transmission was completed; and
- a statement encouraging beneficial owners to submit their voting instructions through the electronic or telephonic means, if any, described in the request for voting instructions sent by the member organization to ensure that such instructions are received in advance of the shareholder meeting."
Also, the form of letter that the broker is required to send to beneficial owners when soliciting voting instructions must include the following provision emphasizing the ability of the beneficial owner to provide voting instructions up to the time of the meeting:
"If we do not hear from you by the tenth day before the meeting, we may vote your shares in our discretion to the extent permitted by the rules of the Exchange. If you are unable to communicate with us by such date, we will, nevertheless follow your voting instructions, even if our discretionary vote has already been given, provided your instructions are received prior to the stockholders' meeting."
While the foregoing relief is targeted primarily at brokers and their intermediaries (for example, Broadridge) that must distribute proxy and voting materials to beneficial owners, this relief may provide some solace for companies who are delayed in providing their proxy materials to these intermediaries and thus may have concerns with ensuring a quorum is present or represented by proxy at their shareholder meetings.
 See Nasdaq Listing Rules 5810(c)(3)(A) and 5810(c)(3)(D).
 See Nasdaq Listing Rule 5810(b).
 See NYSE Listed Company Manual Sections 802.01B and 802.01C.
 See NYSE Listed Company Manual Sections 802.03 and 802.01C.
 See NYSE Listed Company Manual Sections 802.02 and 802.03 for the $50 million standard, and Section 801.02C for the dollar price standard.
 NYSE Listed Company Manual Section 802.01B.