Document ID: SEC-2010-1335-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: NASDAQ Stock Market LLC
Posted Date: 2010-09-02T04:00Z

[Federal Register: September 2, 2010 (Volume 75, Number 170)]
[Notices]               
[Page 53994-53996]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr02se10-96]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-62782; File No. SR-NASDAQ-2010-107]

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

August 27, 2010.
    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 August 25, 2010, The NASDAQ Stock Market LLC (``Nasdaq'') filed with 
the Securities and Exchange Commission (``Commission'') the proposed 
rule change as described in Items I and II below, which Items have been 
substantially prepared by Nasdaq. 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 the 
Substance of the Proposed Rule Change

    Nasdaq proposes to modify the eligibility criteria for a company to 
receive a second compliance period for a bid price deficiency on the 
Nasdaq Capital Market. The text of the proposed rule change is below. 
Proposed new language is in italics; proposed deletions are in 
brackets.\3\
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    \3\ Changes are marked to the rule text that appears in the 
electronic manual of Nasdaq found at http://
nasdaqomx.cchwallstreet.com.
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* * * * *
    5810. Notification of Deficiency by the Listing Qualifications 
Department
    When the Listing Qualifications Department determines that a 
Company does not meet a listing standard set forth in the Rule 5000 
Series, it will immediately notify the Company of the deficiency. As 
explained in more detail below, deficiency notifications are of four 
types:
    (1)-(4) No change.
    Notifications of deficiencies that allow for submission of a 
compliance plan or an automatic cure or compliance period may result, 
after review of the compliance plan or expiration of the cure or 
compliance period, in issuance of a Staff Delisting Determination or a 
Public Reprimand Letter.
    (a)-(b) No change.
    IM-5810-1 No change.
    (c) Types of Deficiencies and Notifications
    The type of deficiency at issue determines whether the Company will 
be immediately suspended and delisted, or whether it may submit a 
compliance plan for review or is entitled to an automatic cure or 
compliance period before a Staff Delisting Determination is issued. In 
the case of a deficiency not specified below, Staff will issue the 
Company a Staff Delisting Determination or a Public Reprimand Letter.
    (1)-(2) No change.
    IM-5810-2 No change.
    (3) Deficiencies for which the Rules Provide a Specified Cure or 
Compliance Period
    With respect to deficiencies related to the standards listed in 
(A)--(E) below, Staff's notification will inform the Company of the 
applicable cure or compliance period provided by these Rules and 
discussed below. If the Company does not regain compliance within the 
specified cure or compliance period, the Listing Qualifications 
Department will immediately issue a Staff Delisting Determination 
letter.
    (A) Bid Price
    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)(F).
    (i) Global Select Market and Global Market
    If a Company listed on The Nasdaq Global Market has not been deemed 
in compliance prior to the expiration of the 180 day compliance period, 
it may transfer to The Nasdaq Capital Market, provided that 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 [, other than the minimum] (except for 
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. [A Company listed on The Nasdaq Global Market 
transferring to The Nasdaq Capital Market must pay any applicable entry 
fees set forth in Rule 5920(a). The Company may also request a hearing 
to remain on The Nasdaq Global Market pursuant to the

[[Page 53995]]

Rule 5800 Series.] Following a transfer to The Nasdaq Capital Market, 
the Company will be afforded the remainder of [any] the applicable 
compliance period set forth in [Rule 5810(c)(3)(A) or] Rule 
5810(c)(3)(A)(ii) [as if the Company had been listed on The Nasdaq 
Capital Market], unless it does not appear to Nasdaq that it is 
possible for the Company to cure the deficiency. The Company may also 
request a hearing to remain on The Nasdaq Global Market pursuant to the 
Rule 5800 Series. Any time spent in the hearing process will not extend 
the length of the remaining applicable compliance periods on The Nasdaq 
Capital Market afforded by this rule.
    (ii) Capital Market
    If a Company listed on the 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[, the Company 
demonstrates that] it meets the applicable market value of publicly 
held shares requirement for continued listing and all other applicable 
standards for initial listing on the 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. 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 grace period. If the Company has publicly announced 
information (e.g., in an earnings release) indicating that it no longer 
satisfies the applicable [initial] listing criteria, it shall not be 
eligible for the additional compliance period under this rule.
    (B)-(F) No change.
    (4) No change.
    (d) No change.
* * * * *

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

    In its filing with the Commission, Nasdaq 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. Nasdaq 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 requirements for the second 
compliance period available to companies that fall below the continued 
listing price requirement. Under the present rules, once a company has 
a closing bid price below $1 for 30 consecutive days it becomes 
deficient and receives written notice that it has a 180 day ``grace'' 
period to regain compliance. Compliance can be achieved by maintaining 
a minimum $1 closing bid price for ten consecutive days. At the 
expiration of the 180 day period, a company can receive an additional 
180 day grace period, provided it is either already listed on the 
Capital Market or transfers to that market and satisfies all of the 
Capital Market's initial listing criteria, except for bid price.
    Nasdaq has observed that many companies fail to qualify for the 
second grace period because they do not meet the market value of 
publicly held shares requirement for initial listing on the Capital 
Market. Eligibility for the second grace period is quite important as 
it allows more time to regain compliance before the company must 
undertake a reverse stock split to increase its stock price, and 
therefore frees company management to focus on running their business 
and not on remaining listed or addressing related investor concerns.
    The link between failure to comply with the bid price requirement 
and failure to meet the initial listing requirement for market value of 
publicly held shares--and thus qualify for the second grace period--is 
clear, given that the market value of publicly held shares is directly 
derived from the price of the security.\4\ Accordingly, Nasdaq proposes 
to ease the requirements for the second grace 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 grace 
period.\5\ The company would still need to meet all of the other 
initial listing criteria for Capital Market other than bid price. In 
addition, 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 grace period. 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 grace period on the Capital Market, unless it 
does not appear to Nasdaq staff that it is possible for the Company to 
cure the deficiency.
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    \4\ Nasdaq has previously recognized this link in other 
contexts. See, e.g., Securities Exchange Act Release No. 58809 
(October 17, 2008), 73 FR 63222 (October 23, 2008) (SR-NASDAQ-2008-
082, suspending both the bid price and market value of publicly held 
shares requirements in light of the financial crisis).
    \5\ 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 Rules 5505(b) and 5555(a)(4).
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    While certain companies that do not currently qualify for the 
second grace period could receive additional time, the proposed rule 
change would not extend the overall maximum of 360 days available to 
companies. Further, Nasdaq's grace periods would remain stricter than 
those of NYSE Amex, which has no $1 continued listing requirement and 
therefore permits companies to remain listed indefinitely at a price 
below $1.\6\
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    \6\ Cf. Section 1003(f)(v) of the NYSE Amex Company Guide 
(stating that NYSE Amex would consider delisting a common stock that 
sells for a substantial period of time at a low price per share, if 
the issuer fails to effect a reverse split of such shares within a 
reasonable time after being notified that the Exchange deems such 
action to be appropriate under all the circumstances).
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    Nasdaq is also proposing non-substantive changes to Rule 
5810(c)(3)(A)(i) and (ii) to clarify and reorder the rule language and 
conform the language in these two sections. These changes are 
consistent with how Nasdaq currently interprets the rule. Nasdaq also 
proposes to remove language about the payment of fees by a company 
which transfers to the Capital Market because no fees are applicable 
under Rule 5920(a) to such a company, making the existing language 
confusing.
2. Statutory Basis
    Nasdaq believes that the proposed rule change is consistent with 
the provisions of Section 6 of the Act,\7\ in general and with Section 
6(b)(5) of the

[[Page 53996]]

Act,\8\ in particular in that it is 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. The proposed rule change is 
consistent with these requirements in that it would permit reasonable 
periods of time for companies to address instances of noncompliance 
with Nasdaq's price requirement and would not adversely affect 
investors or the national market system.
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    \7\ 15 U.S.C. 78f.
    \8\ 15 U.S.C. 78f(b)(5).
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B. Self-Regulatory Organization's Statement on Burden on Competition

    Nasdaq does not believe that the proposed rule change will result 
in any burden on competition that is not necessary or appropriate in 
furtherance of the purposes of the Act, as amended.

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

    Written comments were neither solicited nor 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, as amended, is consistent with the Act. Comments may be 
submitted by any of the following methods:

Electronic Comments

     Use the Commission's Internet comment form (http://
www.sec.gov/rules/sro.shtml); or
     Send an e-mail to rule-comments@sec.gov. Please include 
File Number SR-NASDAQ-2010-107 on the subject line.

Paper Comments

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

All submissions should refer to File Number SR-NASDAQ-2010-107. This 
file number should be included on the subject line if e-mail 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 Web site (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 Web site 
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 a.m. and 3 p.m. Copies of such filing also will be 
available for Web site viewing and printing at the principal office of 
Nasdaq. All comments received will be posted without change; the 
Commission does not edit personal identifying information from 
submissions. You should submit only information that you wish to make 
available publicly. All submissions should refer to File Number SR-
NASDAQ-2010-107 and should be submitted on or before September 23, 
2010.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\9\
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    \9\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Deputy Secretary.
[FR Doc. 2010-21932 Filed 9-1-10; 8:45 am]
BILLING CODE 8010-01-P