Document ID: SEC-2020-0083-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: The Nasdaq Stock Market, LLC
Posted Date: 2020-01-22T05:00Z

[Federal Register Volume 85, Number 14 (Wednesday, January 22, 2020)]
[Notices]
[Pages 3736-3739]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-00917]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-87982; File No. SR-NASDAQ-2020-001]

Self-Regulatory Organizations; The Nasdaq Stock Market LLC; 
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

January 15, 2020.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act'') \1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that 
on January 2, 2020, The Nasdaq Stock Market LLC (``Nasdaq'' or 
``Exchange'') filed with the Securities and Exchange Commission

[[Page 3737]]

(``Commission'') the proposed rule change as described in Items I and 
II below, which Items have been prepared by the Exchange. The 
Commission is publishing this notice to solicit comments on the 
proposed rule change from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange proposes 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 
shares or more to one over the prior two year period.
    The text of the proposed rule change is available on the Exchange's 
website at http://nasdaq.cchwallstreet.com, at the principal office of 
the Exchange, and at the Commission's Public Reference Room.

II. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

    In its filing with the Commission, the Exchange included statements 
concerning the purpose of and basis for the proposed rule change and 
discussed any comments it received on the proposed rule change. The 
text of these statements may be examined at the places specified in 
Item IV below. The Exchange has prepared summaries, set forth in 
sections A, B, and C below, of the most significant aspects of such 
statements.

A. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    Nasdaq proposes to modify the delisting process for securities with 
a bid price below $0.10 for ten consecutive trading days 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 (meaning that an investor would hold one share for every 250 
shares or more owned at the start of the period).
    Currently, Nasdaq rules require that primary equity securities, 
preferred stocks and secondary classes of common stock maintain a 
minimum $1.00 bid price for continued listing.\3\ Under Listing Rule 
5810(c)(3)(A), a security is considered deficient with this requirement 
if its bid price closes below $1.00 for a period of 30 consecutive 
business days. A company with a bid price deficiency has 180 calendar 
days from notification of the deficiency to regain compliance. A 
company generally can regain compliance with the bid price requirement 
by maintaining a $1.00 closing bid price for a minimum of ten 
consecutive business days during the compliance period.\4\ Under 
Listing Rule 5810(c)(3)(A)(ii), a company that lists a security on the 
Nasdaq Capital Market, or transfers its listing to that market, may be 
eligible for a second 180 calendar day period to regain compliance, 
provided that on the last day of the first compliance period the 
company meets the market value of publicly held shares requirement for 
continued listing as well as all other applicable standards for initial 
listing on the Capital Market and notifies Nasdaq of its intent to cure 
the bid deficiency.
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    \3\ See Listing Rules 5450(a)(1), 5460(a)(3), 5550(a)(2) and 
5555(a)(1).
    \4\ Under Listing Rule 5810(c)(3)(G), Nasdaq Staff could extend 
this ten-day period to a maximum of 20 days.
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    This process is 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. Nasdaq has observed 
certain situations where, in Nasdaq's view, a company may be facing 
more serious issues and a compliance period of up to 360 days \5\ 
therefore may not be appropriate. Specifically, these situations 
involve: (i) Securities with very low security prices (below $0.10); 
and (ii) securities where the company has completed one or more reverse 
stock splits over the prior two year period that, when considered 
cumulatively, result in a ratio of 250 shares or more to one (meaning 
that an investor would receive one share for every 250 shares or more 
owned at the start of the period), and then fails to satisfy the bid 
price requirement.
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    \5\ As noted above, under Listing Rule 5810(c)(3)(A) all 
companies are eligible for an initial compliance period of 180 
calendar days from the notification of non-compliance with the bid 
price requirement and a company that lists its security on the 
Nasdaq Capital Market, or transfers its listing to that market, may 
be eligible for a second 180 calendar day period to regain 
compliance, for a total compliance period of up to 360 calendar 
days.
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    In these situations, Nasdaq has observed that the challenges facing 
the company generally are not temporary and may be so severe that the 
company is not likely to regain compliance within the prescribed 
compliance period. Moreover, the bid price issues can be a leading 
indicator of other listing compliance concerns. As a result, these 
companies often become subject to delisting for other reasons during 
the compliance periods. Finally, these companies frequently need to 
raise additional capital to fund their business operations and often do 
so by engaging in extremely dilutive transactions. Accordingly, in 
order to enhance investor protection, Nasdaq proposes to modify the 
listing rules so that these companies are subject to shortened 
compliance periods, which could lead to earlier delisting, and enhanced 
review procedures.
    With respect to securities with very low prices, Nasdaq proposes to 
modify the Listing Rules to provide that a company in a bid price 
compliance period (i.e., the company's security has already traded 
below $1.00 for thirty consecutive days) will immediately receive a 
Staff Delisting Determination if the security trades below $0.10 for a 
period of ten consecutive trading days, ending any otherwise applicable 
compliance period. Such a company could request review of the Delisting 
Determination by a Hearings Panel, and the Panel could grant the 
company additional time to complete a reverse stock split or otherwise 
regain compliance.\6\ Nasdaq believes that placing such companies 
immediately under the scrutiny of a Hearings Panel will serve to better 
protect investors.
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    \6\ Under Listing Rule 5815(c)(1)(A), a Hearings Panel can grant 
an exception to the continued listing standards for a period not to 
exceed 180 days from the date of the Staff Delisting Determination.
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    Nasdaq also proposes to change the Listing Rules to require the 
issuance of a Staff Delisting Determination if a company falls out of 
compliance with the $1.00 minimum bid price (i.e., it has had a closing 
bid price below $1.00 for 30 consecutive business days) after 
completing one or more reverse stock splits resulting in a cumulative 
ratio 250 shares or more to one over the two year period before such 
non-compliance.\7\ In these cases, Nasdaq believes it is inappropriate 
for a security to remain listed while relying on very large reverse 
stock splits to maintain compliance with the $1.00 minimum bid price.
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    \7\ For example, a company could effect a reverse stock split in 
a ratio of 25 shares to one followed within the two-year period by a 
second reverse stock split in a ratio of 10 shares to one, resulting 
in a cumulative ratio of 250 shares to one. Alternatively, a company 
could effect three reverse stock splits in the two year period, with 
ratios of 10 shares to one, five shares to one, and five shares to 
one, respectively, resulting in a cumulative ratio of 250 shares to 
one.
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    A company that is not eligible for a compliance period under these 
proposed rule changes would receive a Staff Delisting Determination, 
which it

[[Page 3738]]

could appeal to a Hearings Panel, and the Panel could grant the company 
an exception to remain listed if it believes the company will be able 
to achieve and maintain compliance with the bid price requirement. 
However, Nasdaq also proposes to modify the Listing Rules so that 
following such a Panel exception the company would be subject to the 
procedures applicable to a company with recurring deficiencies as 
described in Rule 5815(d)(4)(B). As a result, if within one year of the 
date the company regains compliance the company again fails to maintain 
compliance with the price requirement, the company would not be 
eligible for a compliance period and instead the Listing Qualifications 
Department will issue a Staff Delisting Determination, which can be 
appealed to the Hearings Panel.
    Nasdaq believes that it would be unfair to modify the rules 
impacting companies with securities that are already in a compliance 
period, and therefore proposes to implement these new rules for 
companies that first receive notification of non-compliance with the 
bid price requirement after the date of the Commission's approval of 
these changes. A company that has already received notification of non-
compliance would be permitted to regain compliance under the existing 
rule, in the manner that the notification of non-compliance would have 
described.\8\
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    \8\ Nasdaq notes that under Listing Rule 5810(c)(3)(A)(ii), a 
company is not eligible for the second compliance period ``if it 
does not appear to Nasdaq that it is possible for the Company to 
cure the deficiency.'' As is currently the case, Nasdaq may rely 
upon this language to deny the second compliance period to a company 
with a very low stock price or that has engaged in significant prior 
reverse stock splits, even though the company is not yet subject to 
the new rule.
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2. Statutory Basis
    The Exchange believes that its proposal is consistent with Section 
6(b) of the Act,\9\ in general, and furthers the objectives of Section 
6(b)(5) and 6(b)(7) of the Act,\10\ in particular. The proposed rule 
change furthers the objectives of Section 6(b)(5) in that it is 
designed 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, by enhancing Nasdaq's listing requirements and 
limiting the time that a security can remain listed with a price below 
$0.10 or following one or more reverse stock splits with a cumulative 
ratio of 250 to one or more over the prior two year period. In that 
regard, Nasdaq has observed that the challenges facing such companies 
generally are not temporary and may be so severe that the company is 
not likely to regain compliance within the prescribed compliance 
period. Moreover, the price concerns with these companies can be a 
leading indicator of other listing compliance concerns, and these 
companies often become subject to delisting for other reasons during 
the compliance periods. Finally, these companies often have a need to 
raise additional capital to fund their business operations at extremely 
low prices in dilutive transactions. While listed, these securities are 
exempt from the ``Penny Stock Rules,'' \11\ which provide enhanced 
investor protections to prevent fraud and safeguard against potential 
market manipulation. In particular, the Penny Stock Rules generally 
require 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. Nasdaq believes 
that an exemption from these Penny Stock requirements may not be 
appropriate for abnormally low priced stocks and stocks that are 
trading below $1 after completing one or more reverse stock splits with 
a cumulative ratio of 250 to one or more over the prior two year period 
because these securities may have similar characteristics to Penny 
Stocks. Nasdaq therefore believes it is appropriate to subject these 
securities to heightened scrutiny given the availability of the 
exemption to securities listed on Nasdaq.
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    \9\ 15 U.S.C. 78f(b).
    \10\ 15 U.S.C. 78f(b)(5) and (7).
    \11\ See Exchange Act Rules 3a51-1, 17 CFR 240.3a51-1, and 15g-1 
to 15g-100, 17 CFR 240.5g-1 et seq.
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    The proposed rule change furthers the objectives of Section 6(b)(7) 
of the Act in that it continues to provide a fair procedure for 
companies subject to these enhanced listing requirements. These 
companies can seek review of a Staff Delisting Determination from a 
Hearings Panel, which can afford the company additional time to regain 
compliance, and can appeal the Hearings Panel decision to the Nasdaq 
Listing and Hearing Review Council.\12\ As a result, Nasdaq believes 
that the proposed rule appropriately balances the need for appropriate 
listing standards with the statutory requirement to protect investors 
and the public interest.
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    \12\ See Listing Rules 5815 and 5820, respectively.
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    Finally, Nasdaq believes that the ten consecutive trading day 
period that a company must trade below $0.10 before the proposed rule 
would require issuance of a Staff Delisting Determination appropriately 
balances Nasdaq's obligation and desire to protect investors under 
Section 6(b)(5) with the need for a fair and equitable procedure under 
Section 6(b)(7). The ten consecutive trading day period is long enough 
that a temporary decline below $0.10 will not trigger the proposed 
heightened requirements. Moreover, the ten-day period is designed to 
parallel the timeframe, already a part of Nasdaq's rules, that a 
company must trade above $1.00 to demonstrate compliance with the bid 
price requirement.

B. Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange does not believe that the proposed rule change will 
impose any burden on competition not necessary or appropriate in 
furtherance of the purposes of the Act. While Nasdaq does not believe 
there will be any impact on competition from the proposed change, any 
impact on competition that does arise will be necessary to better 
protect investors, in furtherance of a central purpose of the Act.

C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received From Members, Participants, or Others

    No written comments were either solicited or received.

III. Date of Effectiveness of the Proposed Rule Change and Timing for 
Commission Action

    Within 45 days of the date of publication of this notice in the 
Federal Register or within such longer period up to 90 days (i) as the 
Commission may designate if it finds such longer period to be 
appropriate and publishes its reasons for so finding or (ii) as to 
which the self-regulatory organization consents, the Commission will:
    (A) By order approve or disapprove the proposed rule change, or
    (B) institute proceedings to determine whether the proposed rule 
change should be disapproved.

IV. Solicitation of Comments

    Interested persons are invited to submit written data, views, and 
arguments concerning the foregoing, including whether the proposed rule 
change is consistent with the Act. Comments may be submitted by any of 
the following methods:

[[Page 3739]]

Electronic Comments

     Use the Commission's internet comment form (http://www.sec.gov/rules/sro.shtml); or
     Send an email to rule-comments@sec.gov. Please include 
File Number SR-NASDAQ-2020-001 on the subject line.

Paper Comments

     Send paper comments in triplicate to Secretary, Securities 
and Exchange Commission, 100 F Street NE, Washington, DC 20549-1090.

All submissions should refer to File Number SR-NASDAQ-2020-001. This 
file number should be included on the subject line if email is used. To 
help the Commission process and review your comments more efficiently, 
please use only one method. The Commission will post all comments on 
the Commission's internet website (http://www.sec.gov/rules/sro.shtml). 
Copies of the submission, all subsequent amendments, all written 
statements with respect to the proposed rule change that are filed with 
the Commission, and all written communications relating to the proposed 
rule change between the Commission and any person, other than those 
that may be withheld from the public in accordance with the provisions 
of 5 U.S.C. 552, will be available for website viewing and printing in 
the Commission's Public Reference Room, 100 F Street NE, Washington, DC 
20549, on official business days between the hours of 10:00 a.m. and 
3:00 p.m. Copies of the filing also will be available for inspection 
and copying at the principal office of the Exchange. All comments 
received will be posted without change. Persons submitting comments are 
cautioned that we do not redact or edit personal identifying 
information from comment submissions. You should submit only 
information that you wish to make available publicly. All submissions 
should refer to File Number SR-NASDAQ-2020-001, and should be submitted 
on or before February 12, 2020.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\13\
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    \13\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020-00917 Filed 1-21-20; 8:45 am]
 BILLING CODE 8011-01-P