Nasdaq Board Diversity Proposal
Nasdaq has long been a proponent of environmental, social and governance (ESG) disclosures and initiatives, having published a guide for listed companies on the subject over six years ago (see HERE). In December 2020, Nasdaq took it a step further and proposed a rule which would require listed companies to have at least one woman on their boards, in addition to a director who is a racial minority or one who self-identifies as lesbian, gay, bisexual, transgender or queer. Companies that don’t meet the standard would be required to justify their decision to remain listed on Nasdaq. To help facilitate the proposed rule, Nasdaq has also proposed to offer a complimentary board recruiting solution. A final decision on the proposals is expected this summer.
The SEC recently extended the consideration period and will either approve or disapprove the proposal by August 8, 2021. The newest Regulatory Flex Agenda which was published last week and will be a topic of a future blog, included the subject in proposed rule making stage with action slated by October 2021. Its anyone’s call where this will land. The current SEC regime is more likely to pass a rule than previous administrations but there is still significant pushback. The SEC could also kick the can down the road and ask Nasdaq to strengthen the data backing its proposal.
Nasdaq Proposed Board Diversity Rule
Nasdaq proposes to adopt Rule 5605(f) to the corporate governance requirements for listing and continued listing which would require Nasdaq listed companies, subject to certain exceptions, to: (i) to have at least one director who self identifies as a female, and (ii) have at least one director who self-identifies as Black or African American, Hispanic or Latinx, Asian, Native American or Alaska Native, Native Hawaiian or Pacific Islander, two or more races or ethnicities, or as LGBTQ+, or (iii) explain why the company does not have at least two directors on its board who self-identify in the categories listed above.
Nasdaq also proposed to add to its list of services for listed companies to provide a complimentary board recruiting solution to help advance diversity on company boards. The service would provide companies that have not yet achieved a certain level of diversity with one-year complimentary access for two users to a board recruiting solution, which will provide access to a network of board-ready diverse candidates, allowing companies to identify and evaluate diverse board candidates, and a tool to support board benchmarking. To access the service a listed company must make a request on or before December 1, 2022.
The rule would also require Nasdaq listed companies to disclose statistical information regarding its board’s diversity. Statistical information will be required in an annual report or proxy statement, or on the company’s website. Although not required, the proposed rule encourages disclosure of other diverse attributes such as nationality, disability or veteran status. It could be that a company’s reasoning for not having board members that specifically fit the diverse attributes in the rule, is that it has otherwise a diverse board composition based on other considerations. Under the proposed rule Nasdaq will not assess the substance of an explanation but would just verify that the company has provided one.
Foreign issuers will be required to disclose the gender of board members; voluntary disclosure of LGBTQ+ status; and information regarding underrepresented groups in their home jurisdiction. Also, foreign issuers will be required to have at least two diverse directors including at least one female. Both foreign issuers and smaller reporting companies may satisfy the two diverse director requirements by having two female directors.
The following types of companies would be exempt from the requirements: (i) SPACs; (ii) asset backed issuers; (iii) cooperatives; (iv) limited partnerships; (v) management investment companies; (vi) issuers of non-voting preferred securities, debt securities or derivative securities; and (vii) ETFs and similar funds.
If adopted, the Rule would provide each company with one calendar year from adoption to comply with the Rule’s requirement to provide statistical information disclosures. A company that goes public via a business combination with a SPAC, an IPO, a direct listing, a transfer from another exchange or an uplisting from the OTC Markets would have one year to comply with the disclosure requirements. Failure to provide the disclosure would result in a listing deficiency with the ability to submit a plan for cure and to cure within 180 days. Ultimate non-compliance could result in delisting.
A company would have two calendar years to have, or explain why it does not have, at least one diverse director. A Nasdaq Global Select or Global Market listed company would then have four calendar years to either have, or explain why it does not have, at least two diverse directors and a Nasdaq Capital Markets listed company would have five calendar years.
Purpose of the Proposed Rule
Simply put, Nasdaq is of the view that diversity in the board room equates to good corporate governance. They believe that increased diversity brings fresh perspectives, improved decision making and oversight and strengthened internal controls. Further, Nasdaq asserts that the increased focus on diversity by companies, investors, legislators and corporate governance organizations provides evidence that investor confidence is enhanced by greater board diversity. In conducting an internal study on diversity amongst listed companies, Nasdaq found they fell short and that a regulatory impetus would help.
Nasdaq’s rule proposal indicates it conducted extensive research including reviewing a substantial body of third-party research and conducting interviews. Among the questions it sought to answer were (i) whether there is empirical evidence to support the proposition that board diversity increases shareholder value, investor protections and board decision-making; (ii) investors interest in board diversity information; (iii) the current state of board diversity and disclosure; (iv) causes of underrepresentation; (v) various approaches to encourage board diversity; and (vi) the success of approaches taken by other groups, both domestic and foreign.
Clearly Nasdaq is confident that the answers to these questions support not only the value of board diversity and related disclosure, but the value of regulations requiring same. In addition to the results of its studies, Nasdaq cites the increasing call for diversity by large institutional investors such as Vanguard and BlackRock in their corporate engagement and proxy guidelines. Nasdaq also believes that the SEC disclosure regime supports disclosure requirements in this context.
The 127-page Nasdaq proposed rule release contains an in-depth discussion of Nasdaq’s research, findings, and conclusions. Nasdaq also presents counter-information. There is a lack of studies or information of the association between LGBTQ+ diversity and board representation, stock or other financial performance. Many studies support a correlation between women on the board and increased earnings and other financial metric performance, but some also show a lack of correlation between the two. Studies which include other factors, such as strong shareholder rights, show a decreasing impact of diversity to performance.
Interestingly, I believe it is the non-financial aspects, including investor protections (through increased internal controls, public disclosure and management oversight) and confidence, that are compelling Nasdaq to put forth the proposed rule. As it states in its release “[A]t a minimum, Nasdaq believes that the academic studies support the conclusion that board diversity does not have adverse effects on company financial performance.” Moreover, as most directors are chosen from the current directors and C-Suite executive’s social and business network, without a compelling reason to search elsewhere, such as regulatory compliance, a natural impediment to increased diversity will remain.
Although Nasdaq’s finding and arguments are compelling, I remain on the fence as to whether regulatory action setting quotas is appropriate. Certainly, in today’s environment, there is a strong faction of support for the rule and for improvement in diversity in business as a whole. As a woman, I of course support diversity in business and the boardroom. Where I am on the fence regarding the quota issue, I support the disclosure aspects of the proposed rule. Transparency and disclosure on the topic will only provide better information to make sound decisions moving forward.
Board Diversity – Beyond Nasdaq
Putting aside Nasdaq’s rule publication, a lot of groups and thought leaders have been tackling the question of whether board diversity is a benefit or detriment to corporations with thorough arguments to support both sides of the fence. Board composition is consistently one of the most important topics on the agenda for shareholder engagement, and voting.
Harvard Law Professor Jesse Fried has publicly questioned the empirical value of Nasdaq’s board diversity proposal. Also, University of MN Law Professor and former chief White House ethics lawyer Richard Painter wrote a thorough rebuttal to Nasdaq’s findings. That rebuttal was met with its own rebuttal’s pointing out the lack of, and age, of the data presented. It seems one of the best sources of information is California which imposed a board diversity obligation on corporations domiciled in the state two years ago. Since enactment of the statute there has been a significant increase of women on the boards of California entities, though other minorities, including women of color, continue to lag.
Getting ahead of this year’s proxy season, Glass Lewis published an in-depth report on Board Gender Diversity with an overview of where things stand in the U.S. and internationally, investor and state efforts to promote balance in the boardroom, and academic research on the benefits of diversity. Glass Lewis recognizes the complexity of the issue and the recruiting involved to find uniquely qualified directors who bring a breadth of experience and insight to the board table. Simply adding women to the board for diversity’s sake and without careful consideration of qualifications and experience is unlikely to automatically effect any positive corporate change. With that said, the report also concludes that bringing women and diverse board members will add to the overall viewpoints and knowledge base of a board thereby improving corporate performance.
Many companies are not waiting for a rule to increase diversity disclosure. To help stakeholders compare disclosure practices, KPMG recently launched a free new web-based tool that tracks disclosure about board diversity. The software compares disclosure practices by sector, index (Russell 3000 and S&P 500) and company size. There are several comparative publications as well with one by Deloitte and the Alliance for Board Diversity including information through 2020.
The voluntary increase in disclosure comes, at least partially, from pressure by institutional investors which have been vocal on the subject. In 2020 many of those entities promised to put their views to action by increasing diversity in their own house. The data is not in yet as to whether specific vocal proponents of diversity have made significant internal changes, but some are putting on a better show than others. The Carlyle Group announced a new policy calling for at least one candidate who is Black, Latino, Pacific Islander or Native American to be interviewed for every new position and that at least 30% of its portfolio companies will have ethnic diversity on the board of directors.
Besides investor financial incentives, D&O insurers have started to include diversity practices among the many considerations in granting and pricing liability policies.
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Nasdaq Amends Its 20% Dilution Shareholder Approval Rule
Effective September 26, 2018, Nasdaq amended Rule 5635(d) to provide greater flexibility and certainty for companies to determine when a shareholder vote is necessary to approve a transaction that would result in the issuance of 20% or more of the outstanding common stock or 20% or more of outstanding voting power in a PIPE or similar private placement financing transaction. The amendment did not change the remainder of Rule 5635, which requires shareholder approval for transactions such as issuances involving an acquisition of stock or assets of another company, a change of control, or equity compensation that result in a 20% or greater dilution.
Generally, Rule 5635(d) requires Nasdaq-listed companies to obtain shareholder approval in private placement transactions involving the issuance of (i) common stock or securities convertible into or exercisable for common stock at a price less than the greater of book or market value which, together with sales by officers, directors or substantial shareholders of the company, equals 20% or more of common stock or 20% or more of the voting power outstanding before the issuance; or (ii) the sale, issuance, or potential issuance by the company of common stock or securities convertible into or exercisable for common stock equal to 20% or more of the common stock or 20% or more of the voting power outstanding before the issuance for less than the greater of book or market value of the stock. The amendment combines these two sections into one and amends the pricing test for triggering shareholder approval. The new pricing test amends the definition of “market value” solely for purposes of Rule 5635(d) to create a new “Minimum Price” as described below.
Prior to the amendment, Rule 5635(d) exempted from the shareholder approval requirement offerings priced at or above the greater of book or market value per share with market value defined as the closing bid price. That is, the Rule generally only required a vote if the dilution resulted from offerings that were priced at a discount to market value or book value. The Rule amendment eliminates the book value test, and revises the definition of market value to incorporate a five-day average and to use the last closing price instead of the consolidating closing bid price. As a result, under the amended Rule, a private offering involving the issuance of 20% or more of the common stock or 20% or more of the voting power outstanding before the issuance will not require shareholder approval if the offer price is greater than or equal to the lesser of: (i) the last closing price immediately preceding the signing of a binding agreement; or (ii) the average closing price of the common stock on Nasdaq for the five trading days immediately preceding the signing of the binding agreement (the “Minimum Price”). Shareholder approval will be required for private placements priced below the Minimum Price.
Nasdaq’s impetus for amending the rule was to strike a balance between the protection of investors via the shareholder approval rule and a company’s flexibility to efficiently negotiate a deal to raise money quickly with a price that accurately reflects the market value of its security. In the Rule change release, Nasdaq noted that book value is based on historic values and, therefore, is not an appropriate measure of whether a transaction is dilutive or should otherwise require shareholder approval. Moreover, book value is one of several financial data points that is already incorporated into the market value of a security.
Using the last closing price, rather than the last closing bid price, reflects sale prices at one of the more liquid times of the day and, therefore, is believed to be more transparent to investors. Adding the option of choosing between the closing bid price and the five-day average closing price provides more flexibility and certainty for companies in their transactions. For example, in a declining market, the five-day average closing price will be above the current market price, which could make it difficult for companies to close transactions because investors could buy shares at a lower price in the market. Likewise, in a rising market, the five-day average could result in a below-market transaction triggering shareholder approval requirements.
The Rule amendment also combines the existing two sections of 5635(d) into one such that a 20% issuance for purposes of the Rule would involve a transaction other than a public offering, involving the sale, issuance, or potential issuance by the company of common stock or securities convertible into or exercisable for common stock, which, alone or together with sales by officers, directors, or substantial shareholders of the company, equals 20% or more of the common stock or 20% or more of the voting power outstanding before the issuance. This change does not make any substantive change but certainly makes the language more clear and concise.
The Author
Laura Anthony, Esq.
Founding Partner
Anthony L.G., PLLC
A Corporate Law Firm
LAnthony@AnthonyPLLC.com
Securities attorney Laura Anthony and her experienced legal team provide ongoing corporate counsel to small and mid-size private companies, OTC and exchange traded public companies as well as private companies going public on the Nasdaq, NYSE American or over-the-counter market, such as the OTCQB and OTCQX. For more than two decades Anthony L.G., PLLC has served clients providing fast, personalized, cutting-edge legal service. The firm’s reputation and relationships provide invaluable resources to clients including introductions to investment bankers, broker-dealers, institutional investors and other strategic alliances. The firm’s focus includes, but is not limited to, compliance with the Securities Act of 1933 offer sale and registration requirements, including private placement transactions under Regulation D and Regulation S and PIPE Transactions, securities token offerings and initial coin offerings, Regulation A/A+ offerings, as well as registration statements on Forms S-1, S-3, S-8 and merger registrations on Form S-4; compliance with the Securities Exchange Act of 1934, including registration on Form 10, reporting on Forms 10-Q, 10-K and 8-K, and 14C Information and 14A Proxy Statements; all forms of going public transactions; mergers and acquisitions including both reverse mergers and forward mergers; applications to and compliance with the corporate governance requirements of securities exchanges including Nasdaq and NYSE American; general corporate; and general contract and business transactions. Ms. Anthony and her firm represent both target and acquiring companies in merger and acquisition transactions, including the preparation of transaction documents such as merger agreements, share exchange agreements, stock purchase agreements, asset purchase agreements and reorganization agreements. The ALG legal team assists Pubcos in complying with the requirements of federal and state securities laws and SROs such as FINRA for 15c2-11 applications, corporate name changes, reverse and forward splits and changes of domicile. Ms. Anthony is also the author of SecuritiesLawBlog.com, the small-cap and middle market’s top source for industry news, and the producer and host of LawCast.com, Corporate Finance in Focus. In addition to many other major metropolitan areas, the firm currently represents clients in New York, Los Angeles, Miami, Boca Raton, West Palm Beach, Atlanta, Phoenix, Scottsdale, Charlotte, Cincinnati, Cleveland, Washington, D.C., Denver, Tampa, Detroit and Dallas.
Ms. Anthony is a member of various professional organizations including the Crowdfunding Professional Association (CfPA), Palm Beach County Bar Association, the Florida Bar Association, the American Bar Association and the ABA committees on Federal Securities Regulations and Private Equity and Venture Capital. She is a supporter of several community charities including siting on the board of directors of the American Red Cross for Palm Beach and Martin Counties, and providing financial support to the Susan Komen Foundation, Opportunity, Inc., New Hope Charities, the Society of the Four Arts, the Norton Museum of Art, Palm Beach County Zoo Society, the Kravis Center for the Performing Arts and several others. She is also a financial and hands-on supporter of Palm Beach Day Academy, one of Palm Beach’s oldest and most respected educational institutions. She currently resides in Palm Beach with her husband and daughter.
Ms. Anthony is an honors graduate from Florida State University College of Law and has been practicing law since 1993.
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Anthony L.G., PLLC makes this general information available for educational purposes only. The information is general in nature and does not constitute legal advice. Furthermore, the use of this information, and the sending or receipt of this information, does not create or constitute an attorney-client relationship between us. Therefore, your communication with us via this information in any form will not be considered as privileged or confidential.
This information is not intended to be advertising, and Anthony L.G., PLLC does not desire to represent anyone desiring representation based upon viewing this information in a jurisdiction where this information fails to comply with all laws and ethical rules of that jurisdiction. This information may only be reproduced in its entirety (without modification) for the individual reader’s personal and/or educational use and must include this notice.
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NASDAQ Requires Disclosure Of Third-Party Director Compensation
On July 1, 2016, the SEC approved NASDAQ’s new rule requiring listed companies to publicly disclose compensation or other payments by third parties to members of or nominees to the board of directors. The new rule, which went into effect in early August, is being dubbed the “Golden Leash Disclosure Rule.”
The Golden Leash Disclosure Rule
New NASDAQ Rule 5250(b)(3) requires each listed company to publicly disclose the material terms of all agreements or other arrangements between any director or director nominee and any other person or entity relating to compensation or any other payment in connection with the person’s position as director or candidacy as director. The disclosure does not include regular compensation from the company itself for director services. The disclosure must be included in any proxy or information statement issued underRegulation 14C or 14A for a shareholder’s meeting at which directors will be elected. A company can also include the disclosure on its website.
There are a few exemptions from the disclosure requirement, such as arrangements that (i) relate to the reimbursement of expenses in connection with a person’s candidacy as a director; (ii) existed prior to the nominee’s candidacy and the candidate’s relationship with the third party is disclosed in the proxy statements (such as existing employment). I note that in reading the entire rule, I would think expense reimbursement in relation to a candidate’s campaign for election could be material where the candidate is being funded by an activist shareholder and the candidate is objected to by current management.
The Golden Leash disclosure must be made at least annually, and updated if there are material changes that would otherwise require an update of the information. A company has an obligation to conduct a reasonable inquiry to determine any information that is required to be disclosed under the new Rule. Moreover, if information is discovered that should have been disclosed, but was not done so previously, an 8-K must be filed. As long as a company satisfies its obligation to conduct due diligence and remediates any omissions with a prompt 8-K, it will be considered in compliance with the Rule.
NASDAQ also amended Rule 5615, which allows foreign companies to follow their home country practice in certain circumstances, even when such practice differs from U.S. rules. New Rule 5250(b)(3) is included in Rule 5615 such that a foreign company would not have to make the Golden Leash disclosure as long as it is abiding by its home country rule and that it discloses in its annual filings that the home country rule is different and explains the difference.
Background
The Golden Leash Disclosure Rule appears to be a response to the increase in shareholder activism over the past few years. I’ve yet to write a full blog on shareholder activism, though it is on my very long list of future topics. However, this quote from a JP Morgan article published in January 2015 sums it up: “[N]o recent development has influenced firms’ strategic and financial decision-making as profoundly as the surge in shareholder activism following the global financial crisis. From a few activist funds managing less than a total of $12 billion in 2003, the activist asset class has ballooned to more than $112 billion in assets under management for activist hedge funds with most of that growth occurring since 2009.”
NASDAQ actually submitted its first iteration of the Rule to the SEC in March 2016, amended it on May 18, 2016, then withdrew that amendment and filed Amendment 2 on June 30, 2016, which was fast-tracked and approved by the SEC. The SEC received eight comment letters on the Rule.
Whether in support of the Rule or opposed, almost all the comment letters supported the disclosure. One comment letter in favor of the Rule stated, “the ability to keep both arrangement and the terms thereof secret provides ‘raiders’ and other types of activists an unfair tactical advantage over the incumbent board members,” and that “if an insurgent candidate is elected to the board, secrecy around that board member’s outside compensation can inhibit the effective functioning of the board of directors.”
Those opposed generally opposed on the grounds that the information may already be required by other rules and, as such, was duplicative. For example, Item 401(a) of Regulation S-K requires disclosure of any “arrangement or understanding between [the director] and any other person(s)” related to the selection or nomination as a director. Similarly, Item 402(k) requires disclosure of director compensation.
SEC Discussion
As with any proposed rule by an Exchange, the SEC must make a determination that the Exchange’s rules “be designed to prevent fraudulent and manipulative acts and practices, to promote just and equitable principles of trade, 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 SEC continues with an acknowledgment of the critical importance of initial and continued listing standards for exchanges such that only qualifying companies are listed. These qualitative and quantitative standards help ensure fair and orderly markets.
The SEC sees the Golden Leash Disclosure Rule as a corporate governance-related rule providing “greater transparency into the governance processes of listed issuers and enhance investor confidence in the securities markets.”
The SEC acknowledged the potential for duplicative disclosure, which I note was just the topic of a sweeping proposed rule change to eliminate duplication, among other things (see my blog HERE). However, the SEC notes that the Golden Leash Rule is a NASDAQ rule and not an SEC rule and that exchanges often have duplicative rules. The SEC supports such exchange reinforcement, stating, “[T]hese and other disclosure-related listing standards help to ensure that listed companies maintain compliance with the disclosure requirements under the federal securities laws…” Likewise, the SEC notes, “we believe that it is within the purview of a national securities exchange to impose heightened governance requirements…”
The Author
Laura Anthony, Esq.
Founding Partner
Legal & Compliance, LLC
Corporate, Securities and Going Public Attorneys
LAnthony@LegalAndCompliance.com
Securities attorney Laura Anthony and her experienced legal team provides ongoing corporate counsel to small and mid-size private companies, OTC and exchange traded issuers as well as private companies going public on the NASDAQ, NYSE MKT or over-the-counter market, such as the OTCQB and OTCQX. For nearly two decades Legal & Compliance, LLC has served clients providing fast, personalized, cutting-edge legal service. The firm’s reputation and relationships provide invaluable resources to clients including introductions to investment bankers, broker dealers, institutional investors and other strategic alliances. The firm’s focus includes, but is not limited to, compliance with the Securities Act of 1933 offer sale and registration requirements, including private placement transactions under Regulation D and Regulation S and PIPE Transactions as well as registration statements on Forms S-1, S-8 and S-4; compliance with the reporting requirements of the Securities Exchange Act of 1934, including registration on Form 10, reporting on Forms 10-Q, 10-K and 8-K, and 14C Information and 14A Proxy Statements; Regulation A/A+ offerings; all forms of going public transactions; mergers and acquisitions including both reverse mergers and forward mergers, ; applications to and compliance with the corporate governance requirements of securities exchanges including NASDAQ and NYSE MKT; crowdfunding; corporate; and general contract and business transactions. Moreover, Ms. Anthony and her firm represents both target and acquiring companies in reverse mergers and forward mergers, including the preparation of transaction documents such as merger agreements, share exchange agreements, stock purchase agreements, asset purchase agreements and reorganization agreements. Ms. Anthony’s legal team prepares the necessary documentation and assists in completing the requirements of federal and state securities laws and SROs such as FINRA and DTC for 15c2-11 applications, corporate name changes, reverse and forward splits and changes of domicile. Ms. Anthony is also the author of SecuritiesLawBlog.com, the OTC Market’s top source for industry news, and the producer and host ofLawCast.com, the securities law network. In addition to many other major metropolitan areas, the firm currently represents clients in New York, Las Vegas, Los Angeles, Miami, Boca Raton, West Palm Beach, Atlanta, Phoenix, Scottsdale, Charlotte, Cincinnati, Cleveland, Washington, D.C., Denver, Tampa, Detroit and Dallas.
Contact Legal & Compliance LLC. Technical inquiries are always encouraged.
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Legal & Compliance, LLC makes this general information available for educational purposes only. The information is general in nature and does not constitute legal advice. Furthermore, the use of this information, and the sending or receipt of this information, does not create or constitute an attorney-client relationship between us. Therefore, your communication with us via this information in any form will not be considered as privileged or confidential.
This information is not intended to be advertising, and Legal & Compliance, LLC does not desire to represent anyone desiring representation based upon viewing this information in a jurisdiction where this information fails to comply with all laws and ethical rules of that jurisdiction. This information may only be reproduced in its entirety (without modification) for the individual reader’s personal and/or educational use and must include this notice.
© Legal & Compliance, LLC 2016
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NASDAQ Listing Requirements
This blog is the first in a two-part series explaining the listing requirements for the two small-cap national exchanges, NASDAQ and the NYSE MKT, beginning with NASDAQ. In addition to often being asked about the listing requirements on NASDAQ and the NYSE MKT, I am asked about the benefits of trading on such an exchange. Accordingly, at the end of this blog I have included a discussion on such benefits.
The NASDAQ Stock Market
The NASDAQ Stock Market currently has three tiers of listed companies: (1) The NASDAQ Global Select Market, (2) The NASDAQ Global Market and (3) The NASDAQ Capital Market. Each tier has increasingly higher listing standards, with the NASDAQ Global Select Market having the highest initial listing standards and the NASDAQ Capital Markets being the entry-level tier for most micro- and small-cap issuers. Keeping in line with the focus of my blogs and practice, this blog is focused on the NASDAQ Capital Market tier.
A company seeking to list securities on NASDAQ must meet minimum listing requirements, including specified financial, liquidity and corporate governance criteria. NASDAQ has broad discretion over the listing process and may deny an application, even if the technical requirements are met, if it believes such denial is necessary to protect investors and the public interest.
Once listed, a company must meet continued listing standards. In order to apply for listing on NASDAQ, a company must complete and submit to NASDAQ a listing application including specified documents and information.
The application process generally takes four to six weeks. Upon submittal of the application, a NASDAQ analyst will be assigned to the file as a lead interface with the company. The company will receive an initial comment letter within two to three weeks, and the comment and review process will continue until the application is either approved or denied. Like a filing with the SEC, a well prepared NASDAQ application will result in fewer comments and a smoother, quicker process. Generally, a company’s securities counsel takes the lead and is the point person in preparing the application and communicating with NASDAQ.
Also similar to an SEC review process, NASDAQ will review publicly available information about a company, including but not limited to SEC filings, a company’s website, management communications and speeches, and press releases. For the most part, the back-and-forth process does not require a formal protocol, and communications will include e-mail correspondence and phone calls.
Listing Criteria for NASDAQ
To list its securities on NASDAQ, a company is required to meet: (a) certain initial quantitative and qualitative requirements and (b) certain continuing quantitative and qualitative requirements. The quantitative listing thresholds for initial listing are generally higher than for continued listing, thus helping to ensure that companies have reached a sufficient level of maturity prior to listing. NASDAQ also requires listed companies to meet stringent corporate governance standards.
Prior to submitting a full listing application, a company can seek a preliminary listing eligibility review. The Listing Qualifications staff will review the company’s public filings to determine if it satisfies the numerical listing requirements. The staff will also consider compliance with the corporate governance requirements of Marketplace Rules (“Rules”).
Once the preliminary review is completed, the Listing Qualifications staff will determine whether the company satisfies the numerical listing criteria and whether any corporate governance or regulatory issues raised by the company would preclude listing approval. Any final approval, however, will require the company to submit a formal listing application, which application will undergo an extensive review by NASDAQ Listing Qualifications staff. Moreover, any final approval will require satisfactory compliance with certain other qualitative reviews, including a review of the regulatory history of the company’s officers, directors and significant shareholders.
The following information sets forth the requirements to list on the NASDAQ Capital Market, the lowest of the three NASDAQ market tiers, as well as the Corporate Governance Requirements required for such tiers…
Click Here To Download Whitepaper- NASDAQ Listing Requirements
The Author
Laura Anthony, Esq.
Founding Partner
Legal & Compliance, LLC
Corporate, Securities and Going Public Attorneys
LAnthony@LegalAndCompliance.com
Securities attorney Laura Anthony and her experienced legal team provides ongoing corporate counsel to small and mid-size private companies, OTC and exchange traded issuers as well as private companies going public on the NASDAQ, NYSE MKT or over-the-counter market, such as the OTCQB and OTCQX. For nearly two decades Legal & Compliance, LLC has served clients providing fast, personalized, cutting-edge legal service. The firm’s reputation and relationships provide invaluable resources to clients including introductions to investment bankers, broker dealers, institutional investors and other strategic alliances. The firm’s focus includes, but is not limited to, compliance with the Securities Act of 1933 offer sale and registration requirements, including private placement transactions under Regulation D and Regulation S and PIPE Transactions as well as registration statements on Forms S-1, S-8 and S-4; compliance with the reporting requirements of the Securities Exchange Act of 1934, including registration on Form 10, reporting on Forms 10-Q, 10-K and 8-K, and 14C Information and 14A Proxy Statements; Regulation A/A+ offerings; all forms of going public transactions; mergers and acquisitions including both reverse mergers and forward mergers, ; applications to and compliance with the corporate governance requirements of securities exchanges includingNASDAQ and NYSE MKT; crowdfunding; corporate; and general contract and business transactions. Moreover, Ms. Anthony and her firm represents both target and acquiring companies in reverse mergers and forward mergers, including the preparation of transaction documents such as merger agreements, share exchange agreements, stock purchase agreements, asset purchase agreements and reorganization agreements. Ms. Anthony’s legal team prepares the necessary documentation and assists in completing the requirements of federal and state securities laws and SROs such as FINRA and DTC for 15c2-11 applications, corporate name changes, reverse and forward splits and changes of domicile. Ms. Anthony is also the author of SecuritiesLawBlog.com, the OTC Market’s top source for industry news, and the producer and host of LawCast.com, the securities law network. In addition to many other major metropolitan areas, the firm currently represents clients in New York, Las Vegas, Los Angeles, Miami, Boca Raton, West Palm Beach, Atlanta, Phoenix, Scottsdale, Charlotte, Cincinnati, Cleveland, Washington, D.C., Denver, Tampa, Detroit and Dallas.
Contact Legal & Compliance LLC. Technical inquiries are always encouraged.
Follow me on Facebook, LinkedIn, YouTube, Google+, Pinterest and Twitter.
Download our mobile app at iTunes.
Legal & Compliance, LLC makes this general information available for educational purposes only. The information is general in nature and does not constitute legal advice. Furthermore, the use of this information, and the sending or receipt of this information, does not create or constitute an attorney-client relationship between us. Therefore, your communication with us via this information in any form will not be considered as privileged or confidential.
This information is not intended to be advertising, and Legal & Compliance, LLC does not desire to represent anyone desiring representation based upon viewing this information in a jurisdiction where this information fails to comply with all laws and ethical rules of that jurisdiction. This information may only be reproduced in its entirety (without modification) for the individual reader’s personal and/or educational use and must include this notice.
© Legal & Compliance, LLC 2016
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