```

[Federal Register Volume 90, Number 14 (Thursday, January 23, 2025)]
[Notices]
[Pages 8081-8087]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2025-01621]

-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-102245; File No. SR-NASDAQ-2024-045]

Self-Regulatory Organizations; The Nasdaq Stock Market LLC; Order 
Granting Approval of a 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

January 17, 2025.

I. Introduction

    On August 6, 2024, The Nasdaq Stock Market LLC (``Nasdaq'' or 
``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 
minimum bid price compliance periods and the delisting appeals process 
for bid price non-compliance in Nasdaq Rules 5810 and 5815 under 
certain circumstances. The proposed rule change was published for 
comment in the Federal Register on August 23, 2024.\3\ On October 3, 
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 November 20, 2024, the Commission initiated proceedings 
under Section 19(b)(2)(B) of the Exchange Act \6\ to determine whether 
to approve or disapprove the proposed rule change.\7\
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See Securities Exchange Act Release No. 100767 (Aug. 19, 
2024), 89 FR 68228 (``Notice''). Comments received on the Notice are 
available on the Commission's website at: https://www.sec.gov/comments/sr-nasdaq-2024-045/srnasdaq2024045.htm.
    \4\ 15 U.S.C. 78s(b)(2).
    \5\ See Securities Exchange Act Release No. 101238, 89 FR 81956 
(Oct. 9, 2024) (designating November 21, 2024, as the date by which 
the Commission shall either approve, disapprove, or institute 
proceedings to determine whether to disapprove the proposed rule 
change) (``Notice of Extension'').
    \6\ 15 U.S.C. 78s(b)(2)(B).
    \7\ See Securities Exchange Act Release No. 101662, 89 FR 93369 
(Nov. 26, 2024) (``Order Instituting Proceedings'').
---------------------------------------------------------------------------

    This order approves the proposed rule change.

[[Page 8082]]

II. Description of the Proposed Rule Change 8
---------------------------------------------------------------------------

    \8\ All capitalized terms not otherwise defined in this order 
shall have the meanings set forth in the Nasdaq Listing Rules.
---------------------------------------------------------------------------

A. Background

    Nasdaq Rules require a company's equity securities listed on the 
Nasdaq Global Select Market, Nasdaq Global Market, and Nasdaq Capital 
Market to maintain a minimum bid price of at least one dollar per share 
(the ``Bid Price Requirement'').\9\ Upon failure of a company's 
security to satisfy the Bid Price Requirement, Nasdaq Rule 
5810(c)(3)(A) provides for an automatic compliance period of 180 
calendar days from the date Nasdaq notifies the company of the 
deficiency for the company to achieve compliance with the Bid Price 
Requirement.\10\ Subject to certain requirements,\11\ including 
notifying Nasdaq of the company's intent to cure this deficiency, a 
company listed on, or that transfers to, the Nasdaq Capital Market may 
be provided with a second 180-day compliance period.\12\ If a company 
is not eligible for the second compliance period, or the company is 
eligible but does not resolve the bid price deficiency during the 
second 180-day compliance period, the company is issued a Delisting 
Determination under Nasdaq Rule 5810 with respect to that security, 
which can be appealed to a Nasdaq Listing Qualifications Hearings Panel 
(``Hearings Panel'').\13\ A timely request for a hearing ordinarily 
stays the suspension of the security from trading pending the issuance 
of a written Hearings Panel decision.\14\ The Hearings Panel may, where 
it deems appropriate, grant an exception to the Bid Price Requirement 
and allow a company up to an additional 180 days from the date of the 
Delisting Determination to regain compliance.\15\ As a result, a 
company may be continuously deficient with the Bid Price Requirement 
and continue trading on Nasdaq for more than 360 days but not more than 
540 days.\16\
---------------------------------------------------------------------------

    \9\ See Nasdaq Rules 5550(a)(2) (Primary Equity Security listed 
on the Nasdaq Capital Market), 5555(a)(1) (Preferred Stock and 
Secondary Classes of Common Stock listed on the Nasdaq Capital 
Market), 5450(a)(1) (Primary Equity Security listed on the Nasdaq 
Global or Global Select Markets), and 5460(a)(3) (Preferred Stock 
and Secondary Classes of Common Stock listed on the Nasdaq Global or 
Global Select Markets).
    \10\ A failure to meet the Bid Price Requirement occurs when a 
company's security has a closing bid price below $1.00 for a period 
of 30 consecutive business days. See Nasdaq Rule 5810(c)(3)(A). 
Compliance can be achieved by meeting the Bid Price Requirement 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 Nasdaq Rule 5810(c)(3)(H). See 
id.
    \11\ If a company listed on the Nasdaq Capital Market is not 
deemed in compliance before the expiration of the 180-day compliance 
period, it will be afforded an additional 180-day compliance period, 
provided that on the 180th day of the first compliance period it 
meets the applicable market value of publicly held shares 
requirement for continued listing and all other applicable standards 
for initial listing on the Nasdaq Capital Market (except the bid 
price requirement) based on the company's most recent public filings 
and market information and notifies Nasdaq of its intent to cure 
this deficiency. See Nasdaq Rule 5810(c)(3)(A)(ii). If a company 
does not indicate its intent to cure the deficiency, or if it does 
not appear to Nasdaq that it is possible for the company to cure the 
deficiency, the company will not be eligible for the second 
compliance period. See id. If the company has publicly announced 
information (e.g., in an earnings release) indicating that it no 
longer satisfies the applicable listing criteria, it will not be 
eligible for the additional compliance period under this rule. See 
id.
    \12\ See id.
    \13\ See Nasdaq Rule 5815 (Review of Staff Determinations by 
Hearings Panel).
    \14\ See Nasdaq Rule 5815(a)(1)(B).
    \15\ See Nasdaq Rule 5815(c)(1)(A).
    \16\ See Notice, supra note 3, at 68229.
---------------------------------------------------------------------------

    The Nasdaq Rules set forth the circumstances that can curtail or 
alter the bid price compliance periods. First, Nasdaq Rule 
5810(c)(3)(A)(iii) provides that if a company's security has a closing 
bid price of $0.10 or less for 10 consecutive trading days during any 
bid price compliance period, Nasdaq must issue a Delisting 
Determination with respect to that security. Second, Nasdaq Rule 
5810(c)(3)(A)(iv) provides that if a company's security fails to meet 
the Bid Price Requirement and the company has effected one or more 
reverse stock splits over the prior two-year period with a cumulative 
ratio of 250 shares or more to one, then the company is not eligible 
for any compliance periods and Nasdaq must issue a Delisting 
Determination with respect to that security. Finally, Nasdaq Rule 
5810(c)(3)(A) provides that if a company takes a corporate action 
(e.g., a reverse stock split) to regain compliance with the Bid Price 
Requirement and that action results in the company's security falling 
below the numeric threshold for another Exchange listing requirement, 
the company will not be granted any compliance period otherwise 
available for the other listing requirement. In such case, the company 
will continue to be considered non-compliant with the Bid Price 
Requirement until the deficiency pertaining to the other listing 
requirement is cured and thereafter the company meets the Bid Price 
Requirement. If the company does not regain compliance with both 
Exchange listing requirements during the compliance period applicable 
to the initial Bid Price Requirement deficiency, Nasdaq must issue a 
Delisting Determination and no additional compliance periods will be 
available.
    Based on the Exchange's experience administering the rules 
described above, it is proposing two modifications to the delisting 
process in Nasdaq Rules 5810 and 5815. These proposed changes are 
described in more detail below.

B. Suspension After Second Compliance Period

    First, the Exchange proposes to adopt Nasdaq Rule 
5815(a)(1)(B)(ii)d. (``Appeal Process Proposal'') to provide that, 
notwithstanding the general rule that a timely request for a hearing 
shall ordinarily stay the suspension and delisting action pending the 
issuance of a written Hearings Panel decision, a request for a hearing 
shall not stay the suspension of the securities from trading where the 
matter relates to a request made by a company that was afforded the 
second 180-day compliance period described in Nasdaq Rule 
5810(c)(3)(A)(ii) and that failed to regain compliance with the Bid 
Price Requirement during that period.\17\ The Exchange states that 
pursuant to Nasdaq Rule 5815(c)(1)(A), the Hearings Panel will continue 
to have discretion, where it deems appropriate, to provide an exception 
for up to 180 days from the Delisting Determination date for the 
company to regain compliance with the Bid Price Requirement.\18\
---------------------------------------------------------------------------

    \17\ See proposed Nasdaq Rule 5815(a)(1)(B)(ii)d. The Exchange 
states that a company that is suspended under the proposed rule 
could appeal the Delisting Determination to a Hearings Panel, but 
its securities would trade in the over-the-counter (``OTC'') market 
while that appeal is pending. See Notice, supra note 3, at 68229.
    \18\ See Notice, supra note 3, at 68229. The Exchange also 
states that, pursuant to Nasdaq Rule 5815(c)(1)(E), the Hearings 
Panel will continue to have the authority to find the company in 
compliance with all applicable listing standards and reinstate the 
trading of the company's securities on Nasdaq (e.g., if the company 
effects a reverse stock split and maintains a $1.00 closing bid 
price for at least 10 consecutive days while trading in the OTC 
market). See id.
---------------------------------------------------------------------------

    The Exchange also proposes to clarify in proposed Nasdaq Rule 
5815(a)(1)(B)(ii)d. that, pursuant to Nasdaq Rule 5810(c)(3)(A), a 
company achieves compliance with the Bid Price Requirement by meeting 
the applicable standard for a minimum of 10 consecutive business days, 
unless Staff exercises its discretion to extend this 10-day period as 
set forth in Nasdaq Rule 5810(c)(3)(H).\19\
---------------------------------------------------------------------------

    \19\ See proposed Nasdaq Rule 5815(a)(1)(B)(ii)d.
---------------------------------------------------------------------------

    The Exchange states in its proposal that it believes that two 
consecutive compliance periods for a total of 360 days is a sufficient 
period of time for a company to regain compliance with the

[[Page 8083]]

Bid Price Requirement.\20\ Nasdaq states that it provides a company 
with a second bid price compliance period only if the company reviewed 
its circumstances and notified Nasdaq that it intends to cure the bid 
price deficiency by effecting a reverse stock split within the second 
180-day compliance period.\21\ As such, the Exchange states that it 
believes it is not appropriate for a company in these circumstances to 
continue trading on Nasdaq during the pendency of the Hearings Panel 
review process.\22\
---------------------------------------------------------------------------

    \20\ See Notice, supra note 3, at 68229. The Exchange states 
that it has observed that some companies do not regain compliance 
during the second 180-day compliance period notwithstanding the 
company's notification to Nasdaq of its intent to do so. See id. at 
68228. The Exchange states that, in these circumstances, Nasdaq 
issues a Delisting Determination; however, as described above, the 
company could continue its listing by appealing that decision to a 
Hearings Panel, which has the discretion to provide up to 180 
additional days from the date of the Delisting Determination. See 
id. at 68228-29.
    \21\ See id. at 68229.
    \22\ The Exchange states that if a company was not afforded the 
second 180-day compliance period, the company would not be affected 
by this proposal and its security would not be suspended from 
trading on Nasdaq during an appeal to the Hearings Panel, if any. 
See id. at 68228 n.8.
---------------------------------------------------------------------------

C. Delisting Determination if Failure To Meet Bid Price Requirement 
Occurs Within One Year After Reverse Stock Split

    Second, the Exchange proposes to amend Nasdaq Rule 
5810(c)(3)(A)(iv) to provide that if a company's security fails to meet 
the Bid Price Requirement and the company has effected a reverse stock 
split over the prior one-year period, then the company shall not be 
eligible for any compliance period specified in Nasdaq Rule 
5810(c)(3)(A) and the Listing Qualifications Department shall issue a 
Delisting Determination under Rule 5810 with respect to that security 
(``Prior Reverse Split Proposal'').\23\ The Exchange states that this 
proposed change will apply to a company even if the company was in 
compliance with the Bid Price Requirement at the time of its prior 
reverse stock split.\24\
---------------------------------------------------------------------------

    \23\ See id. at 68229.
    \24\ See id. at 68229 n.10.
---------------------------------------------------------------------------

    The Exchange states that it has observed that some companies, 
typically those in financial distress or experiencing a prolonged 
operational downturn, engage in a pattern of repeated reverse stock 
splits to regain compliance with the Bid Price Requirement.\25\ The 
Exchange states that it believes that such actions are often indicative 
of serious difficulties within such companies and, generally, are not 
temporary such that the company is not likely to regain compliance in a 
manner consistent with the Bid Price Requirement within the prescribed 
compliance periods described above.\26\ Accordingly, the Exchange 
states that it believes it is appropriate for investor protection 
reasons that such companies be immediately subject to the delisting 
process, rather than being provided a 180-day compliance period 
pursuant to Nasdaq Rule 5810.\27\
---------------------------------------------------------------------------

    \25\ See id. at 68229.
    \26\ See id. The Exchange further states that companies facing 
these challenges ``will continue oscillating between compliance and 
non-compliance with the Bid Price Requirement.'' Id.
    \27\ See id. The Exchange states that a company could appeal the 
Delisting Determination to the Hearings Panel, where it could 
receive up to 180 days to regain compliance, as described above. See 
id.
---------------------------------------------------------------------------

III. Discussion and Commission Findings

    After careful review, the Commission finds that the proposed rule 
change is consistent with the requirements of the Exchange Act and the 
rules and regulations thereunder applicable to a national securities 
exchange.\28\ In particular, the Commission finds that the proposed 
rule change is consistent with Section 6(b)(5) of the Exchange Act,\29\ 
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; and with Section 6(b)(7) of 
the Exchange Act,\30\ which requires, among other things, that the 
rules of a national securities exchange provide a fair procedure for 
the prohibition or limitation by the exchange of any person with 
respect to access to services offered by the exchange.
---------------------------------------------------------------------------

    \28\ 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).
    \29\ 15 U.S.C. 78f(b)(5).
    \30\ 15 U.S.C. 78f(b)(7).
---------------------------------------------------------------------------

    The development and enforcement of meaningful listing standards 
\31\ 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.\32\
---------------------------------------------------------------------------

    \31\ The Commission notes that this reference to ``listing 
standards'' is referring to both initial and continued listing 
standards.
    \32\ See, e.g., Securities Exchange Act Release Nos. 101271 
(Oct. 7, 2024), 89 FR 82652, 82653 n.23 and accompanying text (Oct. 
11, 2024) (SR-NASDAQ-2024-029) (Order Granting Approval of a 
Proposed Rule Change, as Modified by Amendment No. 2, to Modify the 
Application of Bid Price Compliance Periods); 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.'').
---------------------------------------------------------------------------

    As discussed above, currently, if a company whose security has 
failed to meet the Bid Price Requirement for one or two compliance 
periods timely appeals its Delisting Determination to the Hearings 
Panel, the trading suspension of that security is stayed during the 
pendency of the Hearings Panel review.\33\ The Exchange now proposes 
that those securities that were afforded, and that failed to meet the 
Bid Price Requirement during, the second compliance period would not 
receive a stay of suspension upon appeal.\34\ In addition, the Exchange 
proposes that a company whose security fails to meet the Bid Price 
Requirement and that has effected a reverse stock split of any ratio 
within the prior year will not be eligible for any compliance 
periods.\35\ This latter proposal could lead to the earlier delisting 
of companies that fail to comply with the Bid Price Requirement.
---------------------------------------------------------------------------

    \33\ See supra note 14.
    \34\ See proposed Nasdaq Rule 5815(a)(1)(B)(ii)d.
    \35\ See proposed Nasdaq Rule 5810(c)(3)(A)(iv).
---------------------------------------------------------------------------

    Some comments received on the proposal were generally supportive of

[[Page 8084]]

the goals behind Nasdaq's proposal.\36\ One of the commenters stated 
that the proposal is a ``carefully crafted crucial step in safeguarding 
the interests of retail investors and maintaining the integrity of our 
capital markets.'' \37\ Some other of these commenters supported the 
proposal as a ``step in the right direction,'' though they stated the 
proposal does not go far enough to address concerns with exchanges' 
listing standards related to minimum bid price requirements and the 
process for enforcing such standards.\38\ Another commenter, while 
generally supporting the proposal, expressed concern that the Prior 
Reverse Split Proposal would not take into consideration the ratio of 
the prior reverse stock split or whether the security was in compliance 
with the Bid Price Requirement at the time of the reverse split.\39\
---------------------------------------------------------------------------

    \36\ See Letters from Jennifer Becker, dated Aug. 28, 2024 
(``Becker Letter''); 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, and Joseph Saluzzi, Partner, Themis 
Trading LLC, dated Aug. 23, 2024 (``Joint Industry Letter''); 
American Consumer & Investor Institute, dated Sept. 13, 2024 (``ACII 
Letter''); Daniel Zinn, General Counsel, and Flavia Vehbiu, Deputy 
General Counsel, OTC Markets Group Inc., dated Sept. 17, 2024 (``OTC 
Letter''); Anonymous, dated Sept. 10, 2024 (``Anonymous Letter''); 
Ellen Greene, Managing Director, Equities & Options Market 
Structure, and Joseph Corcoran, Managing Director and Associate 
General Counsel, Securities Industry and Financial Markets 
Association, dated Oct. 8, 2024 (``SIFMA Letter''); Aleksei 
Nikolaev, dated Nov. 26, 2024.
    \37\ Becker Letter.
    \38\ See Joint Industry Letter; ACII Letter; OTC Letter; SIFMA 
Letter. Some of these commenters recommended further changes to 
Nasdaq's rules as well as supporting recommendations made in the 
Petition for Rulemaking on Exchange Listings of Penny Stocks filed 
with the Commission by Virtu Financial, Inc., dated July 15, 2024. 
These additional recommendations are not before the Commission in 
the Nasdaq proposal being considered herein. In approving this 
proposal, the Commission is finding the proposal before us is 
consistent with the Exchange Act.
    \39\ See Anonymous Letter.
---------------------------------------------------------------------------

    Some commenters opposed the Prior Reverse Split Proposal but also 
stated that they did not object to the Appeal Process Proposal.\40\ 
These commenters stated that the Prior Reverse Split Proposal could 
negatively impact access to capital for a segment of Nasdaq-listed 
small companies, particularly biotechnology companies, and incentivize 
trading strategies by short sellers, including ``naked'' short sellers, 
to manipulate downward such company's stock price.\41\ One of these 
commenters stated that other factors beyond ``deep financial or 
operational distress'' contribute to the need for reverse stock splits 
by these issuers, stating that certain biotechnology companies often 
depend on ``frequent capital raises'' and ``are subject to volatile 
stock prices'' that have a ``negative impact on an issuer's trading 
price not often reflective of the issuer's value or suitability as an 
investment.'' \42\ This commenter also stated that the Prior Reverse 
Split Proposal could have a detrimental effect on how companies 
administer and plan for reverse stock splits, particularly as a 
company's stock price approaches noncompliance with the Bid Price 
Requirement.\43\
---------------------------------------------------------------------------

    \40\ See Letters from Seth Lederman, Tonix Pharmaceuticals 
Holding Corp., dated Nov. 14, 2024 (``Tonix Letter''); Faith L. 
Charles, Thompson Hine, dated Nov. 20, 2024 (``Thompson Hine 
Letter''). One of the commenters stated that the Commission should 
consider providing the market additional time to ``absorb the 
effects'' of recent Nasdaq proposals to enhance transparency and 
compliance with Exchange listing requirements in connection with 
reverse stock splits before approving another related rule. See 
Tonix Letter at 6 (citing to 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); 98843 (Nov. 1, 2023), 88 FR 76867 (Nov. 7, 2023) (SR-
NASDAQ-2023-025) (Order Approving a Proposed Rule Change Related to 
Notification and Disclosure of Reverse Stock Splits); 101271 (Oct. 
7, 2024), 89 FR 82652 (Oct. 11, 2024) (SR-NASDAQ-2024-029) (Order 
Granting Approval of a Proposed Rule Change, as Modified by 
Amendment No. 2, To Modify the Application of Bid Price 
Compliance)). The Commission has provided the public with multiple 
opportunities to comment on the current proposed rule change through 
a Notice of Extension and an Order Instituting Proceedings and for 
the reasons discussed herein finds the proposal consistent with the 
Exchange Act.
    \41\ See Tonix Letter; Thompson Hine Letter.
    \42\ Thompson Hine Letter at 1. See also Tonix Letter at 5 
(stating that ``further study is required to determine whether'' 
factors like ``deep financial or operational distress'' is the 
reason behind ``all or even most reverse splits'').
    \43\ See Thompson Hine Letter at 2-3 (stating that the Prior 
Reverse Split Proposal could cause affected companies to ``select 
large reverse split ratios that may cause issues to their 
capitalization'' and ``continually approve reverse stock split 
ratios at annual shareholder meetings'' to preemptively avoid a 
Delisting Determination due to noncompliance with the Bid Price 
Requirement). This commenter also proposed that the Exchange adopt a 
single 180-day compliance period to companies that violate the Bid 
Price Requirement within a year of a reverse stock split. See id. at 
3. While this commenter suggests an alternative that is different 
from Nasdaq's proposal, for the reasons discussed herein, the 
Commission finds that Nasdaq's proposal is consistent with these 
Exchange Act standards and, therefore, should be approved.
---------------------------------------------------------------------------

    Finally, some commenters opposed the proposed rule change based on 
an incorrect understanding of the proposed rule change.\44\ In 
particular, these commenters raised concerns that the ``certainty'' of 
delisting brought about by the proposed rule change would incentivize 
manipulative short-selling activities, undermine the interest of 
Exchange-listed companies, and encourage issuer misconduct to avoid 
delisting.\45\ To the contrary, the proposal would not affect 
companies' right to appeal a Delisting Determination to the Hearings 
Panel and therefore whether companies' securities would ultimately be 
delisted is not a certainty.\46\
---------------------------------------------------------------------------

    \44\ See Letter from Taft Stettinius & Hollister LLP, dated Dec. 
31, 2024 (``Taft Letter''); Thompson Hine Letter at 2. These 
commenters also incorrectly stated that a company fails to meet the 
continued listing standard for the Bid Price Requirement if ``the 
stock has closed at less than $1.00 for ten consecutive trading 
days.'' Taft Letter at 1; Thompson Hine Letter at 1. Pursuant to 
Nasdaq Rule 5810(c)(3)(A), a failure to meet the Bid Price 
Requirement occurs when a company's security has a closing bid price 
below $1.00 for a period of 30 consecutive business days. See supra 
note 10. See also Nasdaq Rule 5810(c)(3)(A)(iii) (stating that if 
during any compliance period specified in Nasdaq Rule 5810(c)(3)(A) 
a company's security has a closing bid price of $0.10 or less for 10 
consecutive trading days, the Listings Qualifications Department 
will issue a Delisting Determination with respect to that security).
    \45\ See Taft Letter at 3-6; Thompson Hine Letter at 2 (stating 
that ``[o]nce a company has conducted a reverse stock split, short-
sellers will be encouraged to cause a company to fall out of 
compliance with the Nasdaq bid price requirements'' and ``[t]he 
certainty of a delisting gives a clear indicator to these short 
sellers that a delisting will occur, as opposed to now, when a 
company can plead a its case to Nasdaq and Nasdaq can still make a 
facts and circumstance determination as to the timing of a company's 
potential delisting.'').
    \46\ See Nasdaq Rule 5815. See also infra notes 70-71 and 
accompanying text (describing Commission and the Financial Industry 
Regulatory Authority, Inc. (``FINRA'') rules to regulate short 
selling).
---------------------------------------------------------------------------

    The Exchange's proposal is reasonably designed to enhance its 
continued listing standards, thereby protecting investors and the 
public interest. The Appeal Process Proposal prohibits continued 
trading of a company's securities on the Exchange during the pendency 
of a delisting appeal when a company has not maintained the Exchange's 
Bid Price Requirement for 360 days. It applies only to companies that 
have notified the Exchange of their intent to cure the bid price 
deficiency during the second 180-day compliance period and that 
therefore receive a second compliance period (for a total of 360 days) 
and yet still fail to meet the Bid Price Requirement.\47\ In such 
cases, it is consistent with investor protection to prohibit such 
companies from continuing to trade on the Exchange during any appeal of 
delisting when they have already failed to cure a bid price deficiency 
for 360 days.\48\

[[Page 8085]]

Commenters generally did not express opposition to this aspect of the 
proposal. One commenter opposed the Appeal Process Proposal stating the 
proposal ``eliminates the ability for registrants to appeal delisting 
decisions while still operating on the exchange'' and that ``many of 
these registrants may only need a brief period to regain compliance 
with the Minimum Bid Price Requirement.'' \49\ However, as stated 
above, the Appeal Process Proposal only applies to companies that have 
failed to cure a bid price deficiency after the first two 180-day 
compliance periods, totaling 360 days provided to a company to comply. 
In addition, affected companies, while their securities will not trade 
on the Exchange during the pendency of an appeal, will still be able to 
seek review of their Delisting Determinations from the Hearings Panel 
in accordance with Nasdaq Rule 5815.\50\
---------------------------------------------------------------------------

    \47\ See supra note 22.
    \48\ See In re Tassaway, Securities Exchange Act Release No. 
11291, 45 SEC. 706, 709, 1975 SEC LEXIS 2057, at 6 (Mar. 13, 1975) 
(``[P]rimary emphasis must be placed on the interests of prospective 
future investors . . . [who are] entitled to assume that the 
securities in [Nasdaq] meet [Nasdaq's] standards. Hence the presence 
in [Nasdaq] of non-complying securities could have a serious 
deceptive effect.'').
    \49\ Taft Letter at 5.
    \50\ See supra note 22. See also Nasdaq Rule 5815.
---------------------------------------------------------------------------

    The Prior Reverse Split Proposal is reasonably designed to curtail 
the use of reverse stock splits to inappropriately delay delisting when 
a security fails to meet the Bid Price Requirement. A commenter 
expressed concern that the Prior Reverse Split Proposal does not take 
into consideration the ratio of the prior reverse stock split.\51\ 
However, as the Exchange discussed in the Notice and in a response to 
the commenter,\52\ the Exchange already has a rule that takes into 
account the cumulative ratio of prior reverse stock splits.\53\ Yet 
since that rule's adoption, the Exchange has continued to observe some 
companies engaging in a pattern of effecting consecutive reverse stock 
splits, which are often accompanied by dilutive issuances of securities 
and which potentially cause investor confusion and operational 
difficulties for market participants.\54\
---------------------------------------------------------------------------

    \51\ See Anonymous Letter.
    \52\ See Letter from Arnold Golub, Vice President, Deputy 
General Counsel, Nasdaq, dated Oct. 5, 2024 (``Nasdaq Response 
Letter'').
    \53\ As described above, Nasdaq Rule 5810(c)(3)(A)(iv) provides 
that if a company's security fails to meet the Bid Price Requirement 
and the company has effected one or more reverse stock splits over 
the prior two-year period with a cumulative ratio of 250 shares or 
more to one, then the company is not eligible for any compliance 
periods and Nasdaq must issue a Delisting Determination with respect 
to that security.
    \54\ See Notice, supra note 3, at 68229; Nasdaq Response Letter 
at 2-3.
---------------------------------------------------------------------------

    The commenter also expressed concern that the Prior Reverse Split 
Proposal does not take into consideration whether a security was in 
compliance with the Bid Price Requirement at the time of the reverse 
split.\55\ In response, Nasdaq stated that, regardless of the reason 
for the reverse split, a company can control the ratio of the split and 
choose a sufficiently high ratio to remain in compliance with the Bid 
Price Requirement for at least one year post-reverse split.\56\ Where 
the company does not choose a sufficiently high ratio, and therefore 
becomes non-compliant within one year, Nasdaq stated that the resulting 
pattern of repeated reverse splits is often indicative of deep 
financial or operational distress that renders the company 
inappropriate for trading on Nasdaq for investor protection 
reasons.\57\ Nasdaq further stated that this pattern creates the same 
investor confusion and operational difficulties regardless of whether 
the company was previously non-compliant, and thus that the rationale 
for the Prior Reverse Split Proposal remains the same regardless of 
whether the company was in compliance with the Bid Price Requirement at 
the time of the reverse split.\58\
---------------------------------------------------------------------------

    \55\ See Anonymous Letter.
    \56\ See Nasdaq Response Letter at 3. In some cases, the share 
reduction caused by the reverse stock split results in a 
proportional reduction in the number of Publicly Held Shares and, 
depending on how fractional shares are treated, may also reduce the 
number of holders of the company's securities. As such, 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. See Securities Exchange Act Release No. 101271 (Oct. 7, 
2024), 89 FR 82652, 82652 (Oct. 11, 2024) (SR-NASDAQ-2024-029) 
(Order Granting Approval of a Proposed Rule Change, as Modified by 
Amendment No. 2, to Modify the Application of Bid Price Compliance 
Periods).
    \57\ See Nasdaq Response Letter at 3.
    \58\ See id.
---------------------------------------------------------------------------

    The Commission finds that it is reasonable that the Prior Reverse 
Split Proposal is not based on the security's compliance with the Bid 
Price Requirement at the time of the reverse split. The Exchange can 
reasonably conclude from its experience that a company's inability to 
maintain compliance with the Bid Price Requirement for at least one 
year post-reverse split--regardless of its security's compliance at the 
time of the reverse split--is indicative of serious difficulties within 
such company that are likely to put continued downward pressure on the 
stock price, such that the company is less likely to regain compliance 
within any compliance periods. In this respect, the Prior Reverse Split 
Proposal is appropriately targeted to those securities that are more 
likely to have serious recurrent issues in regaining and maintaining 
compliance with the Bid Price Requirement.\59\ Moreover, as with the 
Appeal Process Proposal, any affected companies would be able to seek 
review of their Delisting Determinations from the Hearings Panel.\60\
---------------------------------------------------------------------------

    \59\ Nasdaq stated that companies may also reverse split their 
stock for reasons such as ``to attract institutional investors and 
lower transaction costs for investors, however these companies are 
less likely to conduct multiple reverse stock splits such that they 
would be impacted by the [p]roposal.'' Nasdaq Response Letter at 3, 
n.8.
    \60\ See supra note 15 and accompanying text. With respect to 
the Reverse Stock Split Proposal, if a company's security fails to 
meet the Bid Price Requirement and the company has conducted a 
reverse stock split over the prior one-year period, a timely request 
for a hearing will ordinarily stay the suspension of trading and the 
Hearings Panel may, where it deems appropriate, grant an additional 
compliance period. See Nasdaq Rule 5815(a)(1)(B) and (c)(1)(A).
---------------------------------------------------------------------------

    The Exchange's proposal is reasonably designed to further investor 
protection by limiting the ability of listed companies to engage in a 
pattern of repeated reverse stock splits to remain qualified for 
listing. The Exchange states that it is appropriate to subject such 
securities to heightened scrutiny because, as the Exchange stated in 
its proposal,\61\ such securities may have similar characteristics to 
penny stocks and yet, because they are listed on the Exchange, are 
exempt from the Penny Stock Rules, which provide enhanced investor 
protections, among other things, to prevent fraud and safeguard against 
potential market manipulation.\62\ In addition, the Exchange states 
that it has observed that the challenges facing such companies 
generally are not temporary and may be so severe that the companies are 
not likely to regain compliance within the prescribed compliance 
period.\63\ The Exchange also states that the price concerns with such 
companies can be a leading indicator of other listing

[[Page 8086]]

compliance concerns, and that these companies often become subject to 
delisting for other reasons during the compliance periods.\64\ Further, 
the continued listing of low-priced securities raises concerns that 
these securities may not have sufficient public float, investor base, 
and trading interest to promote fair and orderly markets and relatedly 
may have heightened susceptibility to manipulation. Given these 
concerns, the Exchange's proposal to commence delisting proceedings for 
those companies that have conducted a prior reverse split within a year 
of being in violation of the Bid Price Requirement is appropriate and 
consistent with Section 6(b)(5) of the Exchange Act.
---------------------------------------------------------------------------

    \61\ See Notice, supra note 3, at 68230.
    \62\ See 17 CFR 240.3a51-1(a)(1); 17 CFR 240.15g-1 to -9. In 
particular, the Penny Stock Rules provide protections to investors 
in low-priced stocks requiring, among other things, that broker-
dealers provide a disclosure document to their customers describing 
the risk of investing in penny stocks and approve customer accounts 
for transactions in penny stocks.
    \63\ See Notice, supra note 3, at 68230. Nasdaq also stated that 
FINRA has alerted investors that ``low-priced stocks may be more 
susceptible to fraud, including in cases where the company has no 
involvement in that fraud.'' Letter from Arnold Golub, Vice 
President, Deputy General Counsel, Nasdaq, dated Jan. 8, 2025 
(``Nasdaq Response Letter II''), at 5 (citing to FINRA Investor 
Insights, ``Low-Priced Stocks Can Spell Big Problems,'' dated Jan. 
19, 2024, available at https://www.finra.org/investors/insights/low-priced-stocks-big-problems).
    \64\ See id.
---------------------------------------------------------------------------

    Some commenters raised concerns relating to the impact of the Prior 
Reverse Split Proposal on access to capital for a segment of Nasdaq-
listed small companies, particularly biotechnology companies, and 
stated that other factors beyond financial distress also contribute to 
the need for reverse stock splits by these issuers.\65\ As discussed 
above, the Prior Reverse Split Proposal is reasonably designed to 
address the investor protection and market manipulation concerns that 
the Exchange has observed in circumstances involving companies that 
have utilized reverse stock splits. Importantly, the proposal does not 
single out any specific type of Exchange-listed company based on 
whether a company is small or on a sector of the market. The proposal 
reasonably addresses a gap in the Exchange's current continued listing 
standards that potentially allows an issuer to inappropriately delay 
delisting, thereby protecting investors and the public interest. 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, the proposal reasonably balances the intent of the delisting 
process with the need to prevent companies from taking advantage of the 
delisting process for an extended period of time despite indications of 
serious difficulties within such companies that are likely to put 
continued downward pressure on the stock price, contrary to the goal of 
protecting investors and the public interest under the Exchange 
Act.\66\
---------------------------------------------------------------------------

    \65\ See supra notes 41 and 42.
    \66\ In response to the commenters, Nasdaq stated that ``the 
Prior Reverse Split Proposal appropriately balances the goals of 
capital formation and investor protection by discouraging listed 
companies from engaging in a pattern of repeated reverse stock 
splits'' and that ``any incidental burden on affected companies is 
necessary to better protect prospective investors, in furtherance of 
a central purpose of the Exchange Act.'' Nasdaq Response Letter II 
at 4.
---------------------------------------------------------------------------

    The commenters' concern that the Prior Reverse Split Proposal will 
encourage short-selling activities due to non-compliance with continued 
listing standards is not unique to the Exchange's proposal and, indeed, 
exists today.\67\ Short selling provides the market with important 
benefits, such as providing market liquidity and pricing 
efficiency.\68\ While short selling can serve useful market purposes, 
such as facilitating price discovery, there are concerns that it could 
be used to drive down the price of a security, to accelerate a 
declining market in a security, or to manipulate stock prices.\69\ The 
Commission and FINRA have established rules to regulate short selling 
in order to maintain market integrity and protect investors from 
abusive short selling practices.\70\ Further, market manipulation 
activity conducted through short selling is illegal under the general 
anti-fraud and anti-manipulation provisions of the federal securities 
laws.\71\ In response to the commenters, Nasdaq stated that, ``to the 
extent that companies effect larger reverse stock splits such that they 
may maintain compliance and thereby avoid the delisting process for a 
longer period of time, the Prior Reverse Split Proposal may, in fact, 
reduce the attractiveness of a legitimate short position.'' \72\
---------------------------------------------------------------------------

    \67\ See supra note 41.
    \68\ See Securities Exchange Act Release No. 98738 (Oct. 23, 
2023), 88 FR 75100, 75101 (Nov. 1, 2023) (Final Rule: Short Position 
and Short Activity Reporting by Institutional Investment Managers).
    \69\ See id. Nasdaq also stated that ``[l]egitimate short 
selling contributes to efficient price formation, enhances 
liquidity, and facilitates risk management, and short sellers may 
benefit the market and investors in other important ways, including 
by identifying and ferreting out instances of fraud and other 
misconduct at public companies.'' Nasdaq Response Letter II at 2.
    \70\ See, e.g., Securities Exchange Act Release No. 50103 (July 
28, 2004), 69 FR 48008 (Aug. 6, 2004) (Final Rule: Short Sales); 
FINRA Rules 4210 (Margin Requirements), 4320 (Short Sale Delivery 
Requirements), and 4560 (Short-Interest Reporting). See also, e.g., 
Nasdaq Rules, Equity 9, Section 9 (Short-Interest Reporting).
    \71\ See, e.g., Securities Exchange Act Release No. 58774 (Oct. 
14, 2008), 73 FR 61666, 61667 (Oct. 17, 2008) (Final Rule: ``Naked'' 
Short Selling Antifraud Rule) (``Although abusive `naked' short 
selling as part of a manipulative scheme is always illegal under the 
general antifraud provisions of the federal securities laws, 
including Rule 10b-5 of the Exchange Act,[*] Rule 10b-21 will 
further evidence the liability of persons that deceive others about 
their intention or ability to deliver securities in time for 
settlement, including persons that deceive their broker-dealer about 
their locate source or ownership of shares.'').
    \72\ Nasdaq Response Letter II at 4.
---------------------------------------------------------------------------

    One commenter raised concerns regarding the Prior Reverse Split 
Proposal's potential impact on how companies administer reverse stock 
splits and its potential to cause issues for companies' capitalization; 
however, the commenter did not specify any harm that would result from 
this specific proposal, particularly to a company's capitalization.\73\ 
Today, companies often conduct reverse stock splits as their stock 
price approaches noncompliance with the Bid Price Requirement and, as 
discussed above, the continued listing of the low-priced securities of 
companies that engage in a pattern of repeated reverse stock splits 
raises concerns.\74\ In response to the commenter, Nasdaq stated that a 
reverse stock split, ``by design, has no impact on the company's 
capitalization'' because such action has ``the effect of increasing a 
company's stock price by consolidating the outstanding shares.'' \75\ 
Nasdaq further stated that it ``believes that a company facing 
temporary business issues, a temporary decrease in the market value of 
its securities, or temporary market conditions, generally, can choose 
the ratio of a reverse stock split that is high enough to help ensure 
that subsequent price fluctuations will not cause the company's 
securities to fall below the $1.00 minimum bid price requirement within 
the following year.'' \76\
---------------------------------------------------------------------------

    \73\ See supra note 43.
    \74\ See supra note 63 and accompanying text.
    \75\ Nasdaq Response Letter II at 5.
    \76\ Id. See also supra note 56.
---------------------------------------------------------------------------

    In sum, the Exchange's proposal appropriately identifies securities 
listed on its market that are more likely to have serious recurrent 
issues in regaining and maintaining compliance with the Bid Price 
Requirement and proposes reasonable changes to shorten the time that 
such non-compliant securities can remain trading on the Exchange, 
thereby protecting investors and the public interest in accordance with 
Section 6(b)(5) of the Exchange Act,\77\ while at the same time 
maintaining a fair procedure for affected companies to appeal their 
Delisting Determinations to the Hearings Panel in accordance with 
Section 6(b)(7) of the Exchange Act.\78\ For these reasons, the 
Commission finds that the proposed rule change is consistent with the 
requirements of the Exchange Act.
---------------------------------------------------------------------------

    \77\ 15 U.S.C. 78f(b)(5).
    \78\ 15 U.S.C. 78f(b)(7).
---------------------------------------------------------------------------

IV. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Exchange Act,\79\ that the proposed rule change (SR-NASDAQ-2024-045) 
be, and it hereby is, approved.
---------------------------------------------------------------------------

    \79\ 15 U.S.C. 78s(b)(2).

[[Page 8087]]

---------------------------------------------------------------------------

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\80\
---------------------------------------------------------------------------

    \80\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2025-01621 Filed 1-22-25; 8:45 am]
BILLING CODE 8011-01-P
```