Document ID: SEC-2010-1612-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: NASDAQ Stock Market LLC
Posted Date: 2010-10-21T04:00Z

[Federal Register: October 21, 2010 (Volume 75, Number 203)]
[Notices]               
[Page 65044-65046]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr21oc10-87]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-63110; File No. SR-NASDAQ-2010-107]

 
Self-Regulatory Organizations; The NASDAQ Stock Market LLC; Order 
Granting Approval to a Proposed Rule Change To Modify the Eligibility 
Criteria for the Second Compliance Period for a Bid Price Deficiency on 
the Nasdaq Capital Market

October 14, 2010.

I. Introduction

    On August 25, 2010, The NASDAQ Stock Market LLC (``Nasdaq'') filed 
with the Securities and Exchange Commission (``Commission''), pursuant 
to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''),\1\ and Rule 19b-4 thereunder,\2\ a proposed rule change to 
modify the eligibility criteria in order for a listed company to 
qualify for the second compliance period for a bid price deficiency on 
the Nasdaq Capital Market. The proposed rule change was published for 
comment in the Federal Register on September 2, 2010.\3\ The Commission 
received no comment letters on the proposal. This order approves the 
proposed rule change.
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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. 62782 (August 27, 
2010), 75 FR 53994 (``Notice'').
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II. Description of the Proposal

    Nasdaq is proposing, in order for a company to receive a second 
compliance period for a bid price deficiency on the Nasdaq Capital 
Market (``Capital Market''), to modify the eligibility criteria 
concerning market value of publicly held shares. Under the current 
Nasdaq rules, when a company has a closing bid price below $1 for 30 
consecutive days, it is deemed deficient under Nasdaq's bid price 
continued listing standard, and promptly receives written notice that 
it has 180 calendar days from such notification to regain 
compliance.\4\ Compliance can be achieved by maintaining a minimum $1 
closing bid price for ten consecutive days. At the expiration of the 
180-day compliance period, a company can receive an additional 180-day 
compliance period,\5\ provided it is either already listed on the 
Capital Market or transfers to that market and satisfies all of the 
Capital Market's

[[Page 65045]]

initial listing criteria, except for bid price.\6\
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    \4\ See Nasdaq Rule 5810(c)(3)(A).
    \5\ In its filing, Nasdaq refers to the 180-day compliance 
period as a ``grace'' period.
    \6\ See Nasdaq Rule 5810(c)(3)(A)(i)-(ii).
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    Nasdaq has observed that many companies fail to qualify for the 
second compliance period because they do not meet the market value of 
publicly held shares requirement for initial listing on the Capital 
Market. Nasdaq therefore is proposing to ease the requirements for the 
second compliance period on the Capital Market by allowing a company to 
qualify if it satisfies the lower continued listing requirement for 
market value of publicly held shares, thereby enabling more companies 
to be eligible for the second compliance period.\7\ The company would 
still need to meet all of the other initial listing criteria for 
Capital Market other than bid price.\8\
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    \7\ The initial listing requirements for market value of 
publicly held shares for common stock on the Capital Market range 
from $5 million to $15 million, depending on the listing standard 
under which the company qualifies; the continued listing requirement 
is $1 million. See Nasdaq Rules 5505(b) and 5555(a)(4).
    \8\ The initial listing standards for the Capital Market are set 
forth in Nasdaq Rule 5505 and include an equity standard, market 
value of listed securities standard, and a net income standard. See 
Nasdaq Rule 5505.
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    Under the proposal, the company will need to notify Nasdaq of its 
intent to cure the bid price deficiency. If a company does not indicate 
its intent to cure the deficiency, or if it does not appear to Nasdaq 
staff that it is possible for the company to cure the deficiency, the 
company would not be eligible for the second compliance period under 
the Capital Market rules. Under the proposal, a company listed on 
Nasdaq's Global or Global Select Markets would be permitted to transfer 
to the Capital Market if it meets the applicable market value of 
publicly held shares requirement for continued listing and all other 
applicable requirements for initial listing on the Capital Market 
(except for the bid price requirement), and notifies Nasdaq of its 
intent to cure the bid price deficiency.\9\ Once on the Capital Market, 
the company would be eligible for the second compliance period on the 
Capital Market, unless it does not appear to Nasdaq staff that it is 
possible for the Company to cure the deficiency.\10\ In its filing, 
Nasdaq noted that under the proposal, while certain companies that do 
not currently qualify for the second compliance period could receive an 
additional 180 days to comply with the bid price requirement, the 
proposed rule change would not extend the overall maximum time of 360 
days that is currently available to qualifying companies.
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    \9\ As noted above, Nasdaq Global and Global Select companies 
can currently receive the additional 180 day compliance period, 
provided they meet all the applicable Capital Market initial 
requirements and transfer to that market.
    \10\ According to Nasdaq, once a company transfers to the 
Capital Market, Nasdaq would assess whether it is possible for the 
company to cure the deficiency. If not, the company would be denied 
the second 180 day compliance period, and Nasdaq would commence 
delisting proceedings for the company as a Capital Market listing.
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    Nasdaq also proposes to remove language in Rule 5810(c)(3) 
referencing the payment of fees by a company which transfers to the 
Capital Market. The current language implies that there are fees 
applicable to such a company. However, no fees are applicable under 
Rule 5920(a) to such a company. Nasdaq is proposing to delete the 
language, to remove any confusion, and has also proposed some other 
clarifying and non-substantive changes to the rule.\11\
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    \11\ See Notice, supra note 3.
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III. Discussion and Commission Findings

    After careful consideration, the Commission finds that the proposed 
rule change is consistent with the requirements of the Act and the 
rules and regulations thereunder applicable to a national securities 
exchange \12\ and, in particular, the requirements of Section 6 of the 
Act.\13\ Specifically, the Commission finds that the proposed rule 
change is consistent with Section 6(b)(5) of the Act,\14\ which 
requires, among other things, that the rules of a national securities 
exchange be designed to prevent fraudulent and manipulative acts and 
practices, to promote just and equitable principles of trade, to foster 
cooperation and coordination with persons engaged in regulating, 
clearing, settling, processing information with respect to, and 
facilitating transactions in securities, 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 are not designed to permit unfair discrimination between customers, 
issuers, brokers or dealers.
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    \12\ In approving this proposed rule change the Commission has 
considered the proposed rule's impact on efficiency, competition, 
and capital formation. 15 U.S.C. 78c(f).
    \13\ 15 U.S.C. 78f.
    \14\ 15 U.S.C. 78f(b)(5).
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    The development and enforcement of adequate standards governing the 
initial and continued listing of securities on an exchange is an 
activity of critical importance to financial markets and the investing 
public. Listing standards serve as a means for an exchange to screen 
issuers and to provide listed status only to bona fide companies that 
have, or in the case of an initial public offering will have, 
sufficient public float, investor base, and trading interest to provide 
the depth and liquidity necessary to promote fair and orderly markets. 
Adequate standards are especially important given the expectations of 
investors regarding exchange trading and the imprimatur of listing on a 
particular market. Once a security has been approved for initial 
listing, maintenance criteria allow an exchange to monitor the status 
and trading characteristics of that issue to ensure that it continues 
to meet the exchange's standards for market depth and liquidity so that 
fair and orderly markets can be maintained, and so that only companies 
suitable for listing remain listed on a national securities exchange.
    The Commission believes that the proposal to modify the eligibility 
criteria for the second compliance period for a bid price deficiency on 
the Capital Market is reasonable and consistent with the Act, and 
furthers investor protection and the public interest. As stated above, 
Nasdaq has observed that many companies fail to qualify for the second 
compliance period because they do not meet the market value of publicly 
held shares requirement for initial listing on the Capital Market. The 
Commission notes that to qualify for a second compliance period, the 
company would still need to meet all of the other initial listing 
criteria for Capital Market other than bid price, as well as the 
continued listing requirement for market value of publicly held 
shares.\15\ These standards should help continue to ensure that only 
companies that meet the minimum requirements for adequate depth and 
liquidity remain listed for an extended period of time on the Capital 
Market.
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    \15\ See supra note 8.
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    In addition, the company will need to notify Nasdaq of its intent 
to cure the bid price deficiency. If a Capital Market company does not 
indicate its intent to cure the deficiency, or if it does not appear to 
Nasdaq staff that it is possible for the company to cure the 
deficiency, the company would not be eligible for the second compliance 
period. Similarly, a company listed on the Global or Global Select 
Markets would be permitted to transfer to the Capital Market if it 
meets the applicable market value of publicly held shares requirement 
for continued listing and all other applicable requirements for initial 
listing on the Capital Market (except for the bid price requirement) 
and notifies Nasdaq of its intent to cure the bid price deficiency. 
Once on the Capital Market, the company would be eligible for the 
second compliance

[[Page 65046]]

period on the Capital Market, unless it does not appear to Nasdaq staff 
that it is possible for the Company to cure the deficiency.
    The Commission believes that requiring a company to affirmatively 
state its intent to cure the bid price deficiency and Nasdaq staff to 
determine whether it is possible for the company to cure that 
deficiency, provides further protections to investors, by helping to 
ensure that only companies that are serious and capable of gaining 
compliance with the Capital Market listing standards within the 
timeframe provided qualify for the second compliance period. In this 
regard, the Commission would expect a thorough review to ensure that it 
is possible for the bid price deficiency to be cured at the end of the 
second 180 day compliance period and, if not, would expect Nasdaq to 
immediately commence delisting proceedings.
    In approving the Nasdaq's proposal, the Commission recognizes that 
certain companies that do not currently qualify for the second 
compliance period could receive additional time to remain listed on a 
public market. The proposal, however, does not extend the overall 
maximum time of 360 days that a company may remain listed before 
delisting proceedings will commence. Moreover, the proposal eliminates 
the automatic nature of the second 180 day bid price compliance period 
that exists under the current rules. Further, notwithstanding the 
change in eligibility criteria for a second compliance period, the 
Commission expects Nasdaq to monitor companies closely that are out of 
compliance and use its authority to delist issuers in a prompt, 
efficient, and fair manner where necessary and appropriate, in 
accordance with Nasdaq Rule 5100, including where there are public 
interest or other concerns such as low price or market value, that make 
continued listing unwarranted.
    Finally, the Commission finds that Nasdaq's proposal to remove 
language in Rule 5810(c)(3) will reduce confusion regarding the 
application of the rule by clarifying that there are no fees applicable 
to a company which transfer to the Capital Market. The additional 
changes proposed by Nasdaq to the text of Rule 5810(c)(3)(A)(i)-(ii) 
conform the rule language and format of the two paragraphs and clarify 
that Nasdaq will assess a company for compliance with applicable 
listing requirements based on the company's most recent public filings 
and market information. The Commission believes that these changes 
either clarify the rule or are non-substantive.

IV. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\16\ that the proposed rule change (SR-NASDAQ-2010-107), be, and 
hereby is, approved.
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    \16\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\17\
Florence E. Harmon,
Deputy Secretary.
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    \17\ 17 CFR 200.30-3(a)(12).
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[FR Doc. 2010-26474 Filed 10-20-10; 8:45 am]
BILLING CODE 8011-01-P