Nasdaq Revisits Listing Requirements (Again): Proposing Stricter Criteria for New and Continued Listings

Nasdaq’s initial listing standards require companies to meet minimum standards – which can relate to net income, equity, market value or total assets/total revenue. Under each of these tests, companies also must demonstrate that there’s a liquid market for their shares – i.e., they have enough publicly trading shares to support an efficient and orderly trading market.

For the liquidity calculation, Nasdaq only counts shares that are not held by an officer, director or 10% shareholder of the company, and that are not subject to resale restrictions of any kind. Also, as part of an earlier rule change, Nasdaq no longer counts shares registered for resale as unrestricted publicly held shares. Companies applying to list in connection with an IPO or uplist from the OTC market through a firm commitment underwritten public offering must meet the requirement based on shares being sold in the offering.

For companies listing under the “net income” standard on the Nasdaq Global and Capital Markets, the exchange has proposed increasing the minimum unrestricted public float from $8 million and $5 million, respectively, to $15 million. For the Nasdaq Capital Market, this would mean the liquidity requirement would be $15 million regardless of whether the company is applying to list under the net income, equity or market value standard. Nasdaq does not believe it is appropriate to permit significantly lower liquidity thresholds simply because a company has a minimum level of net income.

Additionally, Nasdaq has proposed suspending trading on the exchange and immediately delisting companies that have a market value of listed securities below $5 million for 10 consecutive business days, if they also are noncompliant with one or more of the listing requirements in Nasdaq Rules 5450 or 5550. These numeric listing requirements include bid price, market value of public float, equity, income and total assets/revenue. The proposed changes would have the Nasdaq staff notify the company that its securities are subject to immediate suspension and delisting. There would be no opportunity for a cure period. A company that is suspended under the proposed rule could appeal the delisting determination to Nasdaq’s Listing Qualifications Hearings Panel (Hearings Panel) and could appeal Hearings Panel decisions to the Nasdaq Listing and Hearing Review Council, but its securities would trade on the OTC market while these review processes are pending. If the company regains compliance with the numeric listing requirement that it failed to maintain, the Hearings Panel can reinstate trading on Nasdaq. The Hearings Panel also will continue to have discretion to grant exceptions for up to 180 days for a company to regain compliance with applicable requirements, but trading likely would occur on the OTC market – not Nasdaq – during that time.

Nasdaq is proposing to amend Rules 5810 and 5815 to accelerate the delisting process for securities that have a closing bid price at or below $0.10 for 10 consecutive trading days, which it refers to as the “low price requirement.”

Under current Nasdaq rules:

• Companies must maintain a minimum closing bid price of $1.00 to stay listed.
• If the closing bid price falls below $1.00 for 30 days, the company gets 180 days to fix it.
• In some cases, companies can get a second 180-day grace period.
• Companies can appeal delisting determinations to the Hearings Panel within 7 calendar days, which can further extend the grace period by 45 days or more, although in some cases trading on Nasdaq would be suspended during the review process.
• If a company’s stock is trading below the minimum closing bid price of $1.00, and thereafter drops below the low price requirement during a grace period, Nasdaq must cut short the grace period and issue a delisting notice.

The proposed amendments would make this stricter:

• No grace period at all if a stock has a closing bid price of $0.10 or less for 10 consecutive trading days.
• Nasdaq will immediately issue a delisting determination, even if the closing bid price has been at or above $1.00 within the past 30 days.
• The company’s stock will be suspended from trading on Nasdaq during the pendency of any Hearings Panel review.

If approved, these changes will accelerate the delisting process when the price of a company’s security quickly declines from above $1.00 to below $0.10. Nasdaq has observed that it is difficult for companies in this situation to regain compliance with the minimum bid price requirement. Once delisted, the securities will be subject to “penny stock rules” that require broker-dealers to provide a disclosure document to investors describing the risk of investing in penny stocks and approve customer accounts for such transactions. 

A company that is suspended under the proposed rule could still appeal the delisting determination to the Hearings Panel within 7 calendar days – and could appeal Hearings Panel decisions to the Nasdaq Listing and Hearing Review Council under the procedures spelled out in Rule 5815 – but its securities would trade on the OTC market while these review processes are pending. The Hearings Panel will continue to have the authority to find the company in compliance with all applicable listing standards and reinstate trading on Nasdaq.

The Hearings Panel will continue to have discretion, where it deems appropriate, to provide an exception for up to 180 days from the date of the delisting determination for the company to regain compliance, but trading likely would occur on the OTC market, rather than Nasdaq, during that time. Companies can regain compliance by trading at or above $1.00 for a minimum of 10 consecutive business days, unless the Nasdaq staff exercises its discretion to extend the 10-business day period.

In 2024, a record number of China-based companies applied to list on Nasdaq, continuing a surge that began in 2020. Nasdaq says it has observed transparency and liquidity issues – as well as regulatory challenges – that put these companies’ investors at risk. The exchange is also responding to current national security priorities.

Nasdaq believes that trading in secondary markets is challenging when few US investors participate in an offering and/or insiders retain significant ownership. If approved, the rule will require China-based companies that are listing in connection with an initial public offering to raise at least $25 million in gross proceeds from US public investors in a firm commitment offering.

Proposed Rule 5210(l) would apply to companies:

• That are headquartered or incorporated in China (including the Hong Kong Special Administrative Region and the Macau Special Administrative Region).
• Whose business is principally administered in one of these jurisdictions, based on factors like:
  • Location of books and records.
  • Majority of assets, revenues, directors, officers or employees.
  • Control by China-based entities or individuals.

Nasdaq will consider these factors holistically, recognizing that there are various circumstances that affect where a company conducts its principal business activities.

Comparable requirements would apply to China-based companies seeking to list in connection with de-SPAC transactions, direct listings, and those that are uplisting from the OTC market or another national securities exchange. Specifically:

• De-SPACs: Proposed Rule 5210(l)(ii) would require a company to have at least $25 million in value of unrestricted publicly held shares following the business combination. This calculation would exclude securities held by an officer, director or 10% shareholder of the company, as well as any securities subject to resale restrictions.
• Direct listings: Under proposed Rule 5210(l)(iii), companies will not be able to list on the Nasdaq Capital Market through a direct listing.
  • Companies listing in connection with a direct listing on the Nasdaq Global Market (NGM) or Nasdaq Global Select Market (NGSM) are already subject to enhanced listing standards, which will continue. NGM and NGSM companies must meet all applicable listing requirements as well as the additional requirements of IM 5405-1 or IM-5315-1, respectively, which require meeting threshold levels of unrestricted public float – 200% of the otherwise applicable price-based requirement for NGM and $250 million for companies seeking to list on NGSM. For NGM and NGSM listings, the market value of shares will be based on the lesser of a valuation or the price from sustained trading in the private placement market.
• Uplistings and listing transfers: Proposed Rule 5210(l)(iv) would require a Chinese company that transfers its listing from the OTC market or another national securities exchange to first trade on that other market for at least one year before it is eligible to list on Nasdaq. In addition, like the requirement proposed for companies listing in connection with a business combination, Nasdaq proposes that these seasoned companies, which will be listing without an offering, have a minimum market value of unrestricted publicly held shares of at least $25 million.

If these proposed changes are approved, Nasdaq will also renumber the remainder of Rules 5210(m)and 5210(n) to ensure consistency in its rulebook.

Nasdaq Rule 5815 states that to request a hearing, a company must submit a hearing fee of $20,000 within seven calendar days of the date of the staff’s delisting determination, public reprimand letter or written denial of the initial listing application. The amended rule says that the company will waive its right to request a review if it does not pay the hearings fee within that time period, and no payments will be credited towards the hearings fee unless the company has previously paid all fees due to the exchange.

Similarly, if a company appeals a Hearings Panel decision to the Nasdaq Listing and Hearing Review Council, it must pay the $15,000 appeal fee within 15 calendar days of the Hearings Panel decision and get current on all other unpaid fees.

Unpaid fees may relate to initial and secondary listing applications or ongoing annual charges. Nasdaq observed that companies in financial distress weren’t paying their fees, and it wants to collect full payment before accepting an appeal fee. The rule change also clarifies that appeal fees are nonrefundable, even if the appeal is unsuccessful.