On December 3, 2012, the SEC approved Nasdaq’s proposed rule changes which (i) modify certain disclosure requirements to require issuers to publicly describe the specific basis and concern identified by Nasdaq when a listed issuer does not meet a listing standard; and (ii) give Nasdaq the authority to make a public announcement when a listed issuer fails to make a public announcement. See our November issue of Up to Date and our October 26th blog where we describe in more detail these Nasdaq rule changes.
Generally, under Nasdaq Rule 5810(b), a company listed on Nasdaq that receives from Nasdaq a notification of deficiency, a Staff Delisting Determination or a Public Reprimand Letter (collectively, a “Deficiency Notice”) is required to make a public announcement disclosing receipt of such notice and the Nasdaq Rule(s) upon which the Deficiency Notice is based. Generally, a company can satisfy its obligation to make a public announcement by filing a Form 8-K with the disclosure required by Item 3.01. However, if the notice or delisting determination relates to the requirement to file a periodic report, the company is required to file a press release, in addition to filing a Form 8-K.
As described in its proposed rule changes filed with the SEC, Nasdaq is concerned that companies are not disclosing information sufficient to allow the public to understand the deficiency that led to the Deficiency Notice and the underlying basis of the deficiency. Nasdaq also expressed concern that companies may fail to make the disclosure at all. In particular, Nasdaq noted that, as the remedy for failing to provide the required public disclosure of the receipt of a Deficiency Notice is to halt trading in the company’s securities, a company that has already been halted may decline altogether to make the required disclosure.
To address these concerns, Nasdaq proposes modifying Rules 5250(b)(2) and 5810(b) and IM-5810-1 to require that a company receiving a Deficiency Notice described in its public disclosure “each specific basis and concern identified by Nasdaq in reaching its determination that the [c]ompany does not meet the listing standard.” In addition, Nasdaq proposes modifying IM-5810-1 and adding Rule 5840(l) to provide Nasdaq clear authority to make a public announcement, including by press release, describing a Deficiency Notice or other event involving a company’s listing or trading on Nasdaq. The amendment to IM-5810-1 would permit Nasdaq to make a public announcement of the notice if the company does do so or the company’s announcement does not include all of the required information. New Rule 5840(l) would permit Nasdaq to make a public announcement even when the company has not failed to do so.
The proposed changes will not become effective until approved by the SEC.