NASDAQ Listed-Issuers Subject to New Rules Relating to Disclosure of Non-compliance with Listing Standards

by Sheppard Mullin Richter & Hampton LLP

Certain NASDAQ rules and interpretive material relating to the disclosure requirements surrounding a listed issuer’s non-compliance with the NASDAQ’s listing standards were amended effective December 3, 2012. Under the amended rules, an issuer that receives a notification of deficiency from the NASDAQ concerning non-compliance with continued listing standards must issue a more detailed public announcement. If an issuer fails to provide the required disclosure in a timely manner or if the disclosure is deficient or misleading, the NASDAQ is authorized to issue its owns public disclosure.


On October 3, 2012, citing inadequate public disclosure by some issuers following receipt of a notice of deficiency from the NASDAQ, the NASDAQ proposed amendments to its rules and interpretive materials designed to, among other things, provide the market with sufficient information to make informed trading decisions. The NASDAQ rules in effect at the time of the proposed amendments required a listed issuer to make a public announcement of the receipt of the notification of deficiency and identify the NASDAQ rule upon which the deficiency is based. Under those rules, an issuer could comply by merely disclosing the NASDAQ rule number and describing such rule. On December 3, 2012, the Securities and Exchange Commission approved the NASDAQ’s proposed rule change. The SEC did not receive any comments on the proposed rule change.

What is an issuer required to disclose now?

An issuer that receives a notification of deficiency from the NASDAQ concerning non-compliance with continued listing standards must:

  • ensure timely public announcement disclosing receipt of the NASDAQ notification and the rules upon which it is based by filing a Form 8-K, where required by SEC rules, or by issuing a press release, except that if the notification relates to a failure to meet the requirements of NASDAQ Rules 5250(c)(1) or (2), which relate to an issuer’s obligation to timely file periodic reports, the issuer must issue a press release;
  • publicly disclose in such Form 8-K or press release each specific basis and concern cited by the NASDAQ in its notification of deficiency; and
  • ensure that the information provided in such public announcement is not inaccurate or misleading.

Along with the above requirements, an issuer may now also provide its own analysis of the issues raised in the notice of deficiency. However, the SEC cautions that the appropriate forum for an appeal of delisting determination should be the adjudicatory process under the NASDAQ rules and that the issuer’s analysis should not be used “to litigate the issues”.

Under what circumstance can the NASDAQ issue its own public announcement?

The NASDAQ now has the authority to issue its own public announcement, if:

  • the issuer’s public announcement does not include all of the required information under the new rules or contains any misleading or inaccurate information, or
  • if the issuer does not make the public announcement within the prescribed time.

Can the NASDAQ halt trading in an issuer’s securities for inadequate disclosure?

Yes, the rules now allow the NASDAQ to halt trading of an issuer’s securities, if the issuer’s public announcement does not include all of the required information or if the issuer’s public announcement contains any inaccurate or misleading information. Trading will ordinarily resume after the NASDAQ makes its own public announcement, assuming that the issuer’s failure to make the announcement is the only basis for the trading halt. Previously, NASDAQ was authorized to halt trading of an issuer’s securities if the issuer failed to make the required public announcement within the prescribed time period.

When are the new rules effective?

The amended rules became effective December 3, 2012.

What should you do now?

Compliance and disclosure personnel of NASDAQ-listed issuers receiving a notice of deficiency should familiarize themselves with the current rules in order to prepare public announcements that satisfy the new requirements. Providing rule-compliant disclosures should avoid the NASDAQ from issuing its own public announcements thereby allowing issuers to retain control over the communications to the market regarding what can be a sensitive matter.

Issuer’s in receipt of a notice of deficiency and considering public disclosure of its own analysis of the issues cited by the NASDAQ should ensure that the issuer does not use the public announcement as a forum to litigate the issues and that the public announcement is not inaccurate or misleading. Any inaccurate or misleading analysis so disclosed by the issuer may result in the issuance of a separate public announcement by the NASDAQ clarifying the issuer’s announcement. The SEC expects the NASDAQ to actively monitor issuers’ analysis and for the NASDAQ to promptly issue a public announcement if it detects misleading or inaccurate information.

What if you have questions?

For any questions or more information on these or any related matters, please contact any attorney in the firm's corporate practice group. A list of such attorneys can be found by clicking "Lawyers" on this page. Edwin Astudillo and Yueting Liang participated in drafting this posting.


DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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