This post discusses three recent updates to Nasdaq listing rules including relating to 1) reverse stock splits, 2) board diversity, and 3) code of conduct waivers.

Reverse stock splits. On November 1, 2023, the U.S. Securities and Exchange Commission (SEC) published an order approving Nasdaq’s proposed rule change relating to notification and disclosure of reverse stock splits. Under the new listing rules, a Nasdaq-listed company conducting a reverse stock split will be required to:

• file a complete Company Event Notification Form no later than 12:00 p.m. ET five business days prior to the proposed market effective date, including a draft of the company’s planned public disclosure (see next bullet); and

• make public disclosure through any Regulation FD compliant method (e.g., Form 8-K or press release) about a reverse stock split no later than 12:00 p.m. ET at least two business days prior to the proposed market effective date, and provide the requisite notice to Nasdaq’s MarketWatch Department prior to such public disclosure (similar to notifications relating to other material news).

Nasdaq will not process a reverse stock split unless the foregoing requirements have been timely satisfied.[1] Moreover, if a company attempts to effect a reverse stock split notwithstanding its failure to timely satisfy these requirements, Nasdaq will halt trading in the stock. Nasdaq has submitted a separate rule filing to adopt a new regulatory halt specific to reverse stock splits, which, as of the date of this post, remains under SEC review.

Board diversity. In August 2021, the SEC approved Nasdaq’s board diversity rule, which requires Nasdaq-listed companies to 1) disclose aggregated board diversity data (self-identified) in a board diversity matrix and 2) either satisfy the applicable director diversity objective or explain why they do not satisfy the applicable objective. Following such approval, two conservative groups filed a petition for review of the SEC’s approval of the board diversity rule contending that the rule violates the First and Fourteenth Amendments of the U.S. Constitution and violates the SEC’s statutory authority under the Securities Exchange Act of 1934 (Exchange Act) and the Administrative Procedure Act (APA).

On October 18, 2023, a three-judge panel of the U.S. Court of Appeals for the Fifth Circuit denied the petition finding that Nasdaq is not a state actor subject to constitutional constraints nor are its rules subject to constitutional scrutiny, and that the SEC’s approval order complies with the Exchange Act and the APA. On October 25, 2023, petitioners filed a petition requesting a rehearing en banc by the Fifth Circuit. We are continuing to monitor developments.

As a reminder, Nasdaq provides updated guidance from time to time on the board diversity rule disclosure requirements including, for example, board diversity matrix instructions and templates (available here), board diversity disclosure requirements and examples (available here), and FAQs on board diversity disclosure (available here).

Code of conduct waivers. On September 5, 2023, the SEC published a notice of filing and immediate effectiveness of Nasdaq’s proposal to amend requirements relating to the waiver of the code of conduct in Rules 5610 and IM-5610. Under the amended listing rules, waivers of the code of conduct for directors or executive officers 1) may be approved by the board or by a board committee, consistent with NYSE listing rules, and 2) with respect to foreign private issuers, must be disclosed within four business days by providing website disclosure that satisfies the requirements of Item 5.05(c) of Form 8-K, by including disclosure in a Form 6-K, or by distributing a press release (consistent with the requirements for other Nasdaq-listed companies).

[1] In its rule proposal, Nasdaq provided the following example of this new timing: “For example, Nasdaq states that if a company desires to effect a reverse stock split with a market effective date of Monday, July 24, the company would have to provide Nasdaq with a draft of the disclosure required by proposed Nasdaq Rule 5250(b)(4) and a complete Company Event Notification Form by 12:00 p.m. ET on Monday, July 17, and provide the public disclosure by 12:00 p.m. ET by Thursday, July 20 (assuming there are no holidays during these dates).”