[Federal Register Volume 89, Number 198 (Friday, October 11, 2024)]
[Notices]
[Pages 82652-82654]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2024-23535]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-101271; File No. SR-NASDAQ-2024-029]


Self-Regulatory Organizations; The Nasdaq Stock Market LLC; Order 
Granting Approval of a Proposed Rule Change, as Modified by Amendment 
No. 2, To Modify the Application of Bid Price Compliance Periods

October 7, 2024.

I. Introduction

    On June 21, 2024, The Nasdaq Stock Market LLC (``Exchange'') filed 
with the Securities and Exchange Commission (``Commission''), pursuant 
to Section 19(b)(1) of the Securities Exchange Act of 1934 (``Exchange 
Act'') \1\ and Rule 19b-4 thereunder,\2\ a proposed rule change to 
modify the application of the bid price compliance periods where a 
listed company takes an action to achieve compliance with the bid price 
requirement and that action causes non-compliance with another listing 
requirement. The proposed rule change was published for comment in the 
Federal Register on July 9, 2024.\3\ On August 21, 2024, pursuant to 
Section 19(b)(2) of the Exchange Act,\4\ the Commission designated a 
longer period within which to approve the proposed rule change, 
disapprove the proposed rule change, or institute proceedings to 
determine whether to disapprove the proposed rule change.\5\ On October 
3, 2024, the Exchange filed Amendment No. 2 \6\ to the proposed rule 
change.\7\ This order approves the proposed rule change, as modified by 
Amendment No. 2.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See Securities Exchange Act Release No. 100461 (July 3, 
2024), 89 FR 56457 (``Notice''). Comments received on the Notice are 
available on the Commission's website at: https://www.sec.gov/comments/sr-nasdaq-2024-029/srnasdaq2024029.htm.
    \4\ 15 U.S.C. 78s(b)(2).
    \5\ See Securities Exchange Act Release No. 100791, 89 FR 68671 
(Aug. 27, 2024) (designating October 7, 2024 as the date by which 
the Commission shall either approve, disapprove, or institute 
proceedings to determine whether to disapprove the proposed rule 
change).
    \6\ Amendment No. 1 to the proposed rule change was submitted on 
September 27, 2024, and it was subsequently withdrawn on October 3, 
2024.
    \7\ In Amendment No. 2, the Exchange (1) clarified the 
application of Rule 5810(c)(3)(H) in extending the ten consecutive 
day compliance period for regaining compliance with the minimum bid 
price requirement, (2) clarified that the failure to satisfy the 
requirements during the compliance period(s) applicable to the 
initial bid price deficiency will result in the issuance of a Staff 
Delisting Determination Letter, and (3) made other technical and 
non-substantive changes for readability. Because Amendment No. 2 
does not materially alter the substance of the proposed rule change 
and makes clarifying modifications, Amendment No. 2 is not subject 
to notice and comment. The full text of Amendment No. 2 can be found 
on the Commission's website at: https://www.sec.gov/comments/sr-nasdaq-2024-029/srnasdaq2024029-526675-1511382.pdf.
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II. Description of the Proposed Rule Change, as Modified by Amendment 
No. 2

    The Exchange is proposing to amend Rule 5810(c)(3)(A) to modify the 
application of the bid price compliance periods where a listed company 
takes an action to achieve compliance with the $1.00 minimum bid price 
continued listing requirement \8\ (the ``Bid Price Requirement'') and 
that action causes non-compliance with another listing requirement.\9\
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    \8\ The Exchange states that each tier of Nasdaq listed 
securities includes a requirement that specified securities maintain 
a $1.00 minimum bid price. See Notice, supra note 3, at 56457, n.3 
(citing to Rule 5550(a)(2) (Primary Equity Security listed on the 
Nasdaq Capital Market) and Rule 5450(a)(1) (Primary Equity Security 
listed on the Nasdaq Global or Global Select Markets).
    \9\ Rule 5810(c)(3)(A) states: ``A failure to meet the continued 
listing requirement for minimum bid price shall be determined to 
exist only if the deficiency continues for a period of 30 
consecutive business days. Upon such failure, the Company shall be 
notified promptly and shall have a period of 180 calendar days from 
such notification to achieve compliance. Compliance can be achieved 
during any compliance period by meeting the applicable standard for 
a minimum of 10 consecutive business days during the applicable 
compliance period, unless Staff exercises its discretion to extend 
this 10 day period as discussed in Rule 5810(c)(3)(H).'' Rules 
5810(c)(3)(A)(i) and (ii) also provide an additional 180 day 
compliance period for companies listed on Capital Markets, or Global 
Select or Global Market that transfer to Capital Markets, that are 
not in compliance with the bid price requirement prior to expiration 
of the first 180 day compliance period if certain requirements are 
met.
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    The Exchange states that listed companies may effect a reverse 
stock split \10\ to regain compliance with the Bid Price Requirement. 
According to the Exchange, the reduction in the number of shares caused 
by the reverse stock split results in a proportional reduction in the 
number of Publicly Held Shares \11\ and depending on how fractional 
shares are treated, may also reduce the number of holders of the 
company's securities.\12\ As a result, the Exchange states that a 
reverse stock split used to regain compliance with the Bid Price 
Requirement may result in the company's non-compliance with other 
Exchange listing rules that require a certain number of holders and 
Publicly Held Shares.\13\ Upon a company's failure to satisfy the 
applicable holder or number of Publicly Held Shares requirement, Rule 
5810(c)(2)(A) generally allows the company a 45-calendar day period to 
provide a plan to regain compliance to Nasdaq staff and Rule 
5810(c)(2)(B) generally provides that Nasdaq staff may grant an 
extension of up to 180 calendar days for the company to achieve 
compliance.\14\
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    \10\ The Exchange states that reverse stock splits have the 
effect of increasing a company's stock price by consolidating the 
outstanding shares. See Notice, supra note 3, at 56457.
    \11\ Rule 5005(a)(35) defines ``Publicly Held Shares'' as: 
``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.'' See also e.g., Rules 5550(a)(3) and 
(4) (requiring 300 public holders and at least 500,000 Publicly Held 
Shares for Primary Equity Securities listed on the Nasdaq Capital 
Market) and Rules 5450(a)(2), 5450(b)(1)(B), 5450(b)(2)(B) and 
5450(b)(3)(B) (requiring 400 total holders and, depending on other 
characteristics of the company, either 750,000 or 1.1 million 
Publicly Held Shares for Primary Equity Securities listed on the 
Nasdaq Global Market).
    \12\ See Notice, supra note 3, at 56457.
    \13\ See id.
    \14\ See id. at 56457, n.5.
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    Currently, a company that regains compliance with the Bid Price 
Requirement by taking a corporate action (e.g., a reverse stock split) 
that results in the company's security falling below the numeric 
threshold for another Exchange listing requirement could be

[[Page 82653]]

granted additional time of up to 180 calendar days from initial 
notification by Nasdaq staff to regain compliance with the newly 
created deficiency.\15\ Nasdaq believes that it is not appropriate for 
a company to receive additional time to cure non-compliance with such 
newly violated listing standard.\16\ Accordingly, Nasdaq states that it 
is proposing this rule change to prevent companies from benefiting from 
additional time for the subsequent deficiency that was ultimately 
caused by the company's non-compliance with the Bid Price 
Requirement.\17\
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    \15\ Nasdaq provided the following example of how its current 
rules work for a Nasdaq Capital Market listed company seeking to 
regain compliance with a bid price deficiency. Company A with 
1,600,000 Publicly Held Shares attempts to regain compliance with 
the Bid Price Requirement by effecting a reverse stock split at a 
ratio of 1-for-4, which would initially increase the Company A's 
stock price above $1.00. See id. at 56457. Assuming Company A 
thereafter maintains a closing bid price above $1.00 for ten 
consecutive business days, under current Rule 5810(c)(3)(A), Company 
A will achieve compliance with the Bid Price Requirement at the 
conclusion of the tenth consecutive business day. See id. However, 
in this example, at the same time that the reverse stock split 
increased Company A's stock price, the 1-for-4 reverse stock split 
also reduced the number of Publicly Held Shares from 1,600,000 to 
400,000, causing Company A to no longer satisfy the minimum number 
of Publicly Held Shares required to remain listed on the Nasdaq 
Capital Market. See id. As a result, under these circumstances, the 
reverse stock split would allow Company A to regain compliance with 
the Bid Price Requirement of Rule 5550(a)(2) while at the same time 
causing non-compliance with the minimum Publicly Held Shares 
requirement of Rule 5550(a)(4). See id.
    \16\ See id.
    \17\ See id.
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    Under the proposed rule, such company will not be considered to 
have regained compliance with the Bid Price Requirement if the company 
takes an action to achieve compliance and that action results in the 
company's security falling below the numeric threshold for another 
Exchange listing requirement without regard to any compliance periods 
otherwise available for that other listing requirement.\18\ In such 
event, the company will continue to be considered non-compliant until 
both: (i) the other deficiency is cured and (ii) thereafter the company 
meets the bid price standard for a minimum of ten consecutive business 
days, unless Nasdaq staff exercises its discretion to extend this ten 
day period as discussed in Rule 5810(c)(3)(H). If the company does not 
demonstrate compliance with (i) and (ii) during the compliance 
period(s) applicable to the initial bid price deficiency, Nasdaq will 
issue a Staff Delisting Determination Letter.\19\
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    \18\ See proposed Rule 5810(c)(3)(A).
    \19\ See proposed Rule 5810(c)(3)(A). The Exchange states that 
Company A described in footnote 15 above ``would continue to be 
considered non-compliant with the Bid Price Requirement until both 
the new Publicly Held Shares deficiency is cured and thereafter the 
company maintains a $1.00 bid price for a minimum of ten (10) 
consecutive business days.'' See Notice, supra note 3, at 56457-58. 
The Exchanges states that all of this must be accomplished during 
the compliance period applicable to the initial Bid Price 
Requirement deficiency. See id. at 56458. Accordingly, the proposed 
rule would not allow Company A to submit a plan to regain compliance 
with the Publicly Held Shares requirement and would instead require 
Company A to regain compliance with both rules within the applicable 
compliance period for the Bid Price Requirement pursuant to Rule 
5810(c)(3)(A), unless extended pursuant to Rule 5810(c)(3)(H). See 
id.
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III. Discussion and Commission Findings

    After careful review, the Commission finds that the proposed rule 
change, as modified by Amendment No. 2, is consistent with the 
requirements of the Exchange Act and the rules and regulations 
thereunder applicable to a national securities exchange.\20\ In 
particular, the Commission finds that the proposed rule change, as 
modified by Amendment No. 2, is consistent with Section 6(b)(5) of the 
Exchange Act,\21\ which requires, among other things, that the rules of 
an exchange be designed to prevent fraudulent and manipulative acts and 
practices, to promote just and equitable principles of trade, to remove 
impediments to and perfect the mechanism of a free and open market and 
a national market system, and, in general, to protect investors and the 
public interest, and not be designed to permit unfair discrimination 
between customers, issuers, brokers, or dealers.
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    \20\ In approving this proposed rule change, the Commission has 
considered the proposed rule's impact on efficiency, competition, 
and capital formation. See 15 U.S.C. 78c(f).
    \21\ 15 U.S.C. 78f(b)(5).
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    The development and enforcement of meaningful listing standards 
\22\ for an exchange is of critical importance to financial markets and 
the investing public. Among other things, such listing standards help 
ensure that exchange-listed companies will have sufficient public 
float, investor base, and trading interest to provide the depth and 
liquidity to promote fair and orderly markets. Meaningful listing 
standards also are important given investor expectations regarding the 
nature of securities that have achieved an exchange listing, and the 
role of an exchange in overseeing its market and assuring compliance 
with its listing standards.\23\
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    \22\ The Commission notes that this reference to ``listing 
standards'' is referring to both initial and continued listing 
standards.
    \23\ See, e.g., Securities Exchange Act Release Nos. 88716 (Apr. 
21, 2020), 85 FR 23393 (Apr. 27, 2020) (SR-NASDAQ-2020-001) (Order 
Approving a Proposed Rule Change To Modify the Delisting Process for 
Securities With a Bid Price at or Below $0.10 and for Securities 
That Have Had One or More Reverse Stock Splits With a Cumulative 
Ratio of 250 Shares or More to One Over the Prior Two-Year Period); 
88389 (Mar. 16, 2020), 85 FR 16163 (Mar. 20, 2020) (SR-NASDAQ-2019-
089) (Notice of Filing of Amendment No. 1 and Order Granting 
Accelerated Approval of a Proposed Rule Change, as Modified by 
Amendment No. 1, To Amend Rule 5815 To Preclude Stay During Hearing 
Panel Review of Staff Delisting Determinations in Certain 
Circumstances). See also Securities Exchange Act Release No. 81856 
(Oct. 11, 2017), 82 FR 48296, 48298 (Oct. 17, 2017) (SR-NYSE-2017-
31) (Notice of Filing of Amendment No. 1 and Order Granting 
Accelerated Approval of a Proposed Rule Change, as Modified by 
Amendment No. 1, To Amend the Listed Company Manual To Adopt Initial 
and Continued Listing Standards for Subscription Receipts) (stating 
that ``[a]dequate standards are especially important given the 
expectations of investors regarding exchange trading and the 
imprimatur of listing on a particular market'' and that ``[o]nce a 
security has been approved for initial listing, maintenance criteria 
allow an exchange to monitor the status and trading characteristics 
of that issue . . . so that fair and orderly markets can be 
maintained.'').
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    As discussed above, currently, a company that regains compliance 
with the Bid Price Requirement by taking a corporate action (e.g., a 
reverse stock split) that results in the company's security falling 
below the numeric threshold for another Exchange listing requirement 
could be granted additional time (up to 180 calendar days) to regain 
compliance with the newly created deficiency.\24\ The Exchange believes 
that this scenario, as described in the examples provided in the 
Notice,\25\ creates confusion for investors about a company's ability 
to maintain compliance with its listing rules thereby negatively 
impacting investor confidence in the market.\26\ The Exchange believes 
that its proposal to address these concerns will protect investors and 
provide additional clarity to Exchange listed companies and market 
participants by preventing a company from receiving a compliance 
determination (for its initial bid price deficiency) and communicating 
to investors that it has regained compliance until it has cured both 
the new deficiency caused by its corporate action and thereafter its 
bid price deficiency during the compliance period applicable to the 
initial Bid Price Requirement deficiency.\27\
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    \24\ See supra note 15 and accompanying text.
    \25\ See supra notes 15 and 20.
    \26\ See Notice, supra note 3, at 56457.
    \27\ See id. at 56458.
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    The Exchange's proposal is reasonably designed to enhance its 
continued listing standards, particularly those involving issuers with 
securities that trade near or below the Bid Price Requirement that may 
be motivated to utilize reverse stock splits to inappropriately delay 
delisting, thereby protecting investors and the public

[[Page 82654]]

interest. In particular, the proposal reasonably addresses a gap in the 
Exchange's current continued listing standards that potentially allows 
an issuer to delay delisting, through corporate action taken to cure a 
Bid Price Requirement deficiency that then results in a deficiency in 
another numeric continued listing requirement, and thereby remain 
listed on the Exchange for an extended period of time despite not 
maintaining the Exchange standards required for continued listing.\28\
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    \28\ See supra note 20.
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    Importantly, the Exchange's proposal also prevents a company from 
requesting or receiving a compliance determination for its initial Bid 
Price Requirement deficiency and communicating to investors that it has 
regained compliance with the Exchange's listing requirements until it 
has also cured any non-compliance with other numeric listing 
requirements caused by its actions to cure the initial Bid Price 
Requirement deficiency.\29\ If the company does not meet both these 
requirements, in that order, during the compliance period applicable to 
the initial bid price deficiency, the Exchange will issue a Staff 
Delisting Determination Letter. Furthermore, while the Commission 
recognizes that the Exchange delisting process is in part designed to 
allow companies experiencing temporary financial and/or business issues 
to regain compliance with continued listing standards,\30\ the proposal 
reasonably balances the intent of the delisting process with the need 
to prevent companies from taking advantage of the delisting process 
through multiple extensions to remain listed while failing to comply 
with the Exchange's continued listing standards, contrary to the goal 
of protecting investors and the public interest.
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    \29\ Under the proposal, if the reverse split causes a new 
deficiency, the company will not be deemed compliant with the Bid 
Price Requirement even if it has a bid price above $1.00 for ten 
consecutive days after the reverse split until the new deficiency is 
first cured, and thereafter the bid price requirement is met for ten 
consecutive business days or such additional time period pursuant to 
Rule 5810(c)(3)(H).
    \30\ The Exchange has stated, for example, that the bid price 
compliance periods are ``designed to allow adequate time for a 
company facing temporary business issues, a temporary decrease in 
the market value of its securities, or temporary market conditions 
to come back into compliance with a bid price deficiency.'' See 
Securities Exchange Act Release No. 87982 (Jan. 15, 2020), 85 FR 
3736, 3737 (Jan. 22, 2020) (SR-NASDAQ-2020-001) (Notice of Filing of 
Proposed Rule Change to Modify the Delisting Process for Securities 
with a Bid Price Below $0.10 and for Securities that Have Had One or 
More Reverse Stock Splits with a Cumulative Ratio of 250 or More to 
One over the Prior Two Year Period).
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    Finally, the Commission notes that the comment letters received on 
the proposal were generally supportive.\31\
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    \31\ See Letter from Joseph Corcoran, Managing Director, 
Associate General Counsel, Securities Industry and Financial Markets 
Association, dated July 30, 2024; Thomas H. Merritt, Deputy General 
Counsel, Virtu Financial, Inc., dated Aug. 5, 2025; Letter from 
Daniel Zinn, General Counsel, and Flavia Vehbiu, Deputy General 
Counsel, OTC Markets Group Inc., dated Sept. 17, 2024. See also 
Joint Letter from Christopher A. Iacovella, President and Chief 
Executive Officer, American Securities Association, Stephen Hall, 
Legal Director, Better Markets, Tyler Gellasch, President and CEO, 
Healthy Markets Association, John Ramsay, Chief Market Policy 
Officer, Investors Exchange LLC, Joseph Saluzzi, Partner, Themis 
Trading LLC, dated Aug. 23, 2024, at 2, n.4 (stating that recent 
Exchange proposals, including SR-NASDAQ-2024-029, to amend listing 
rules to address concerns regarding ``listed penny stocks'' 
``represent steps in the right direction''). The comment letters 
received also express support for additional proposals to enhance 
exchange listing standards to further address investor protection 
concerns, particularly those involving Nasdaq listed companies with 
low-priced securities. Nasdaq states that it is considering other 
changes to the delisting process applicable to companies that are 
non-compliant with the Bid Price Requirement and such changes will 
be subject to a separate rule filing. See Notice, supra note 3, at 
56458, n.10. See, e.g., Securities Exchange Act Release No. 100767 
(Aug. 19, 2024), 89 FR 68228 (Aug. 23, 2024) (SR-NASDAQ-2024-045) 
(Notice of Filing of Proposed Rule Change to Modify the Application 
of the Minimum Bid Price Compliance Periods and the Delisting 
Appeals Process for Bid Price Non-Compliance in Listing Rules 5810 
and 5815 Under Certain Circumstances). In approving this proposal, 
the Commission is finding the proposal before us is consistent with 
the Exchange Act.
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    For the reasons discussed above, the Commission finds that this 
proposed rule change, as modified by Amendment No. 2, is consistent 
with the requirements of the Exchange Act.

IV. Conclusion

    It Is Therefore Ordered, pursuant to Section 19(b)(2) of the 
Exchange Act,\32\ that the proposed rule change (SR-NASDAQ-2024-029), 
as modified by Amendment No. 2, be, and it hereby is, approved.
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    \32\ Id.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\33\
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    \33\ 17 CFR 200.30-3(a)(12).
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Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2024-23535 Filed 10-10-24; 8:45 am]
BILLING CODE 8011-01-P