Update: Following the original issuance of this alert, The Nasdaq Stock Market LLC and the New York Stock Exchange have proposed rule changes to provide additional flexibility to public companies in light of the coronavirus (COVID-19) pandemic. Each of these proposed rule changes was declared immediately effective by the Securities and Exchange Commission. We have updated this alert in footnotes 1, 2, and 3 with respect to the application of these rules.
Reacting to the current market uncertainty and volatility caused by the coronavirus (COVID-19) pandemic, the New York Stock Exchange (NYSE) and The Nasdaq Stock Market LLC (Nasdaq) have implemented several temporary rule changes that have been approved by the Securities and Exchange Commission (SEC) to provide temporary relief to companies listed on these exchanges that have fallen out of compliance with various continued listing requirements. The temporary rule changes suspend certain continued listing requirements of each exchange, affording listed companies additional time to regain compliance with the applicable continued listing requirements. In general, the relief provided by each exchange is similar, but there are important differences that listed companies should bear in mind. This alert provides a summary of each Nasdaq Rule and NYSE Rule that has been temporarily suspended, the time period for such suspension and key takeaways and reminders for listed companies.
Minimum Bid/Closing Price
- Requirement: All Nasdaq-listed companies must maintain a minimum bid price of $1.00/share for all listed securities (Nasdaq Rules 5450(a)(1), 5460(a)(3), 5550(a)(2) and 5555(a)(1)).
- Status: Compliance period tolled through June 30, 2020, subject to Nasdaq’s recently approved rule expediting delisting under certain circumstances.
- Requirement: All NYSE-listed companies must maintain an average closing price of at least $1.00/share for all common and capital stock (NYSE Rule 802.01C).
- Status: Compliance period tolled through June 30, 2020.
Listed companies that were already below $1.00/share before the onset of the COVID-19 pandemic may still want to consider taking appropriate steps to obtain shareholder approval for a reverse stock split in connection with other matters for which the company may be seeking shareholder approval.
- Requirement: Companies listed on the Nasdaq Global and Global Select Markets must maintain a minimum market value of publicly held shares (MVPHS) for their primary equity securities of either $5 million (Nasdaq Rule 5450(b)(1)(C) (as one of the requirements for meeting the continued listing standards equity standard)) or $15 million (Nasdaq Rule 5450(b)(2)(C) (as one of the requirements for meeting the continued listing standards market value standard) and Nasdaq Rule 5450(b)(3)(C) (as one of the requirements for meeting the continued listing standards total assets/total revenue standard)) and for their other classes of listed securities of $1,000,000 (Nasdaq Rule 5460(a)(2)). Companies listed on the Nasdaq Capital Market must maintain a minimum market value of publicly held shares for all of their listed securities of $1 million (Nasdaq Rules 5550(a)(5) and 5555(a)(4)).
- Status: Compliance period tolled through June 30, 2020.
- Requirement: Public companies listed on the NYSE generally must maintain an average global market capitalization of at least $15 million or be subject to immediate delisting (NYSE Listing Rule 802.01B). Companies with less than $50 million in shareholders’ equity generally must maintain an average global market capitalization of at least $50 million (NYSE Listing Rule 802.01B).
- Status: Compliance periods tolled through June 30, 2020.
Nasdaq has not suspended compliance with its market value of listed securities (MVLS) requirement. Thus, companies listed on the Nasdaq Global or Global Select Market that only meet the market value standard for continued listing (Nasdaq Rule 5450(b)(2)) will still need to comply with the requirement that they maintain a MVLS of at least $50 million, satisfy either the equity standard (Nasdaq Rule 5450(b)(1)) or the total assets/revenue standard (Nasdaq Rule 5450(b)(3)) for continued listing on the Nasdaq Global or Global Select Market or transfer their listing to the Nasdaq Capital Market.
Companies listed on the Nasdaq Capital Market must, in addition to certain other requirements, satisfy at least one of the following criteria: (i) shareholders’ equity of at least $2.5 million, (ii) MVLS of at least $35 million or (iii) net income from continuing operations of $500,000 in the most recently completed fiscal year or in two of the three most recently completed fiscal years (Nasdaq Listing Rule 5550(b)). Therefore, development-stage companies listed on the Nasdaq Capital Market that have recurring losses and a shareholders’ deficit will be subject to delisting if they do not have a market value of listed securities of at least $35 million. However, in prior guidance, Nasdaq noted that it has the ability to grant additional time for companies to regain compliance with the MVLS requirement and encouraged Nasdaq-listed companies to contact Nasdaq Listing Qualifications for guidance.
Shareholder Approval Requirements
- Requirement: Shareholder approval is required in connection with certain issuances of equity securities, including certain issuances (i) to related parties in connection with an acquisition of another company (Nasdaq Rule 5635(a)(2)) or (ii) involving 20% or more of the company’s outstanding common stock or 20% of the voting power outstanding (Nasdaq Rule 5635(d)). However, there is a financial viability exception to these requirements (Nasdaq Rule 5635(f)).
- Status: Nasdaq has not tolled its shareholder approval requirements. However, it has stated that it will consider the impact of disruptions caused by the COVID-19 pandemic in its review of any pending or new requests for a financial viability exception.
- Requirement: Shareholder approval is required in connection with certain issuances of common stock, or securities convertible into or exercisable for common stock, including certain issuances (i) to related parties (NYSE Rule 312.03(b)) or (ii) involving 20% or more of the company’s outstanding common stock or 20% of the voting power outstanding (NYSE Rule 312.03(c)).
- Status: The NYSE has waived the numerical limitations on issuances to related parties set forth in NYSE Rule 312.03(b) through June 30, 2020 so long as the listed company sells the securities in a cash transaction that meets the minimum price requirements in NYSE Rule 312.04 and the transaction is approved by the company’s audit committee or comparable committee comprised solely of independent directors. The NYSE has also waived the 5% limitation in the “bona fide private financing” exception to the general shareholder approval requirement in NYSE Rules 312.03(c) and 312.04(g). The requirements that the NYSE is temporarily waiving do not have comparable requirements imposed by Nasdaq.
In connection with any proposed financing, listed companies should examine the applicable shareholder rules to determine their applicability to each company’s particular circumstances and whether relief should be sought.
Notification and Suspension Process
The NYSE and Nasdaq will continue to identify and notify companies that do not meet the relevant continued listing requirement of their noncompliance, and such identified companies will be required to issue press releases and/or meet the Form 8-K disclosure requirements under SEC rules. For companies that receive a noncompliance notice prior to June 30, 2020, the various periods to regain compliance for the applicable continued listed requirements will commence on July 1, 2020.
For Nasdaq-listed companies that were not in compliance with the minimum bid price requirement or the MVPHS requirements prior to the effective date of the relief, or for NYSE-listed companies that were not in compliance with the minimum closing price requirement, the 180-day grace period allowed under the relevant Nasdaq and NYSE rules will be tolled effective April 16, 2020 and will resume on July 1, 2020. Similarly, for NYSE-listed companies that are in the 18-month compliance period with respect to the $50 million standard, the period will be tolled effective April 21, 2020 and resume on July 1, 2020. Accordingly, each such company will have the number of days remaining in its compliance period starting on July 1 in order to regain compliance (or request an extension, if applicable). However, the NYSE cautioned that it will continue to review companies’ progress under any NYSE-accepted compliance plans on a quarterly basis during the period until July 1, 2020, and that it may commence delisting proceedings against a company prior to the end of the maximum compliance plan period if the company fails to meet the material aspects of the compliance plan accepted by the NYSE or any of the quarterly milestones in that plan.
For Nasdaq-listed companies that are in the Hearings process, Nasdaq noted that, following June 30, 2020, those companies would return to the same stage they were in when the tolling period began. Nonetheless, if a company in the Hearings process has had an oral or written hearing before a Hearings Panel and the Hearings Panel has made a determination to delist, those companies will not get the benefit of the tolling period, even if the Hearings Panel has not issued the written decision required by Nasdaq rules prior to the tolling period taking effect. The NYSE will not provide any additional compliance period to a company if the NYSE has already commenced delisting proceedings against the company, including for a company that has exercised its appeal right.
If you have any questions related to this alert, please do not hesitate to contact any member of the Public Companies group or your regular Smith Anderson lawyer. Additionally, please visit and bookmark our firm’s Coronavirus (COVID-19) Business Resource Center, which is continuously updated with useful materials and resources related to COVID-19. This tool has been made available to ensure that our clients and the broader business community stay informed on key issues that may impact their operations and to navigate the related business and legal issues during these challenging times.
 On April 21, 2020, the SEC approved a proposed rule change filed by Nasdaq to expedite delisting for (i) securities with a bid price at or below $0.10/share during any bid price compliance period and (ii) securities that had had one or more reverse stock splits with a cumulative ratio of 250 shares or more to one over the prior two-year period. On May 14, 2020, the SEC declared immediately effective a proposed rule change filed by Nasdaq to delay the implementation date for this expedited delisting rule change. As modified, Nasdaq will implement the expedited delisting rule change for public companies that first receive notification of non-compliance on or after September 1, 2020. A company that receives notification of non-compliance prior to that date will not be subject to the expedited delisting rule change.
 On May 4, 2020, the SEC declared immediately effective a proposed rule change filed by Nasdaq to provide a temporary exception, through June 30, 2020, from Nasdaq’s shareholder approval requirements for certain issuances of 20% or more of a Nasdaq-listed company’s outstanding shares and for certain capital-raising issuances that could be considered equity compensation. The rule change includes a safe harbor through which companies may issue securities relying on the temporary exception without approval from Nasdaq.
 On May 14, 2020, the SEC declared immediately effective a proposed rule change filed by the NYSE to provide a temporary exception, through June 30, 2020, from the application of the shareholder approval requirements for specified issuances of 20% or more of the outstanding shares and, in certain narrow circumstances, for issuances to related parties or other capital-raising issuances that could be considered equity compensation. Unlike the safe harbors provided in the Nasdaq temporary exception described in footnote 2, the NYSE must approve all transactions in advance of any issuance of securities in reliance on the temporary exception.