On September 30, 2014, the SEC published an NYSE amendment, effective as of such publication, to adopt a new initial listing standard, and to eliminate all but one of the current NYSE initial listing standards, for US operating companies.
The amendment provides for a global market capitalization test to serve as a new initial listing standard for US operating companies. The global market capitalization test requires that a listing operating company have a minimum total global market capitalization of $200 million at the time of initial listing. A company that is already publicly traded at the time it applies to list on the NYSE must meet the $200 million global market capitalization requirement for at least 90 consecutive trading days immediately preceding the date on which it receives clearance to submit an application to list on the NYSE.
The amendment also eliminates four of the NYSE’s five current initial listing standards for US operating companies: (1) the valuation/revenue with cash flow test, (2) the pure valuation/revenue test, (3) the affiliated company test, and (4) the assets and equity test.
Despite the proposed global market capitalization test, companies listing must also meet both the existing distribution requirements of Section 102.01A, and the stock price and market value of publicly-held shares requirements of Section 102.01B, of the Listed Company Manual. In addition, companies listing under the proposed global market capitalization test must comply with all other applicable NYSE listing rules.
The notes relating to the amendment highlight that Nasdaq and Nasdaq Global Market have a competitive advantage over the NYSE under existing listing standards, particularly with respect to pre-revenue research and development companies. The amendment, and the implementation of the global market capitalization test, is the NYSE’s attempt to level the playing field.
On January 11, 2013, the SEC approved proposed changes to the listing standards of the New York Stock Exchange LLC and NASDAQ Stock Market LLC related to compensation committees. Both exchanges created transition periods to comply with the new rules.
As of July 1, 2013, NASDAQ and NYSE listed companies will be required to comply with the new rules relating to the authority of a compensation committee to retain compensation consultants, legal counsel, and other compensation advisers; the authority to fund such advisers; and the responsibility of the committee to consider independence factors before selecting such advisers. The requirement that such authority and responsibilities of the compensation committee be included in the compensation committee’s written charter does not apply until a later date (see below) for NASDAQ listed companies and such companies should consider under state corporate law whether to grant such specific responsibilities and authority through a charter, resolution or other board action. In contrast, NYSE listed companies will have to amend their existing charters as of July 1, 2013 to address these additional rights and responsibilities of the compensation committee related to compensation consultants, legal counsel, and other compensation advisers. To the extent a NASDAQ listed company does not have a compensation committee by July 1, 2013, these requirements will apply to the independent directors who determine, or recommend for the board’s determination, the compensation of the CEO and other executive officers of the company.
The remaining new rules, for example, compensation committee charter and independence standards for compensation committee members, will not have to be complied with by NASDAQ listed companies until the earlier of their first annual meeting after January 15, 2014, or October 31, 2014.
NYSE listed companies will have until the earlier of their first annual meeting after January 15, 2014, or October 31, 2014, to comply with the new standards for compensation committee director independence.
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.
On September 25, 2012, each of The NASDAQ Stock Market LLC and New York Stock Exchange filed with the SEC proposed rules amending their listing standards for compensation committees. Generally, under the Securities Exchange Act of 1934, the SEC should decide whether to approve or disapprove proposed rule changes within 45 days of the publication of notice of the filing of a proposed rule change or within such longer period (up to 90 days) as the SEC may designate. The 45th day from the publication of notice of filing of the compensation committee proposed rule changes by the exchanges was November 29, 2012. The SEC extended the 45-day time period for SEC action on these proposed rule changes and designated January 13, 2013, as the date by which the SEC should either approve or disapprove these 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.