News

Changes to NYSE Quantitative Listing Standards

News Brief
June 17, 2005

By: Cydney Posner

The SEC has posted an order granting accelerated approval to NYSE amendments to its original and continued Quantitative Listing Standards. These rules were first proposed in April 2004 and have currently been applied in a Pilot Program. The NYSE will provide a period of 30 trading days from the date of SEC approval until the amendments will become effective. In addition, the NYSE plans accommodations for those companies that are currently within a 12-month period following their recovery from previous non-compliance or are currently below continued listing standards.

Prior to the Pilot Program, a company desiring to list equity securities was required to meet one of four specified financial standards.

  • An earnings test of
    • (a) pre-tax earnings of $6.5 million in aggregate for the last three fiscal years, with either a minimum of: (a) $2.5 million in earnings in the most recent fiscal year and $2 million in each of the preceding two years; or
    • (b) $4.5 million in earnings in the most recent fiscal year, with positive earnings in each of the preceding two years.
  • (i) market cap of at least $500 million and revenues of at least $100 million over the most recent 12-month period. Provided that these thresholds were met, a company with operating cash flows of at least $25 million in aggregate for the last three fiscal years and positive amounts in each of the three fiscal years would have qualified for listing; or
  • (ii) market cap of at least $1 billion and revenues of at least $100 million in the most recent fiscal year.
The new "Earnings Test" eliminates the two-tier structure and requires that companies demonstrate pre-tax earnings of $10 million in aggregate for the last three fiscal years and positive results in all three of the years tested with a minimum of $2.0 million in earnings in each of the preceding two years. The new "Valuation/Revenue with Cash Flow Test" incorporates the requirements of (i) above. The "Pure Valuation/Revenue Test" incorporates the requirements of (ii) above, but lowers the thresholds to require that companies demonstrate (a) market capitalization of at least $750 million and (b) revenues of at least $75 million during the most recent fiscal year.

There are also corresponding restructuring changes to the minimum numerical standards for non-U.S. issuers.

In addition, there are changes to the numerical continued listing standards. Under the new standards, companies (listed under Sections 102.01C or 103.01B) would be required to maintain average global market cap over a consecutive 30-trading-day period of at least $25 million or undergo the prompt initiation of suspension and delisting procedures by the NYSE (the "Minimum Continued Listing Standard").

In addition, the new standards would specifically relate to the original listing standards used to qualify a company for listing. Companies that list under the Earnings Test (or its predecessor test) will be considered to be below the compliance threshold if average global market capitalization over a consecutive 30-trading-day period is less than $75 million and, at the same time, total stockholders' equity is less than $75 million. The rules eliminate the current alternate threshold for the Earnings Test that resulted in a company's being below the compliance threshold if average global market capitalization over a consecutive 30-trading-day period is less than $15 million (as a result of the proposed $25 million Minimum Continued Listing Standard).

Issuers that list under the "Valuation/Revenue with Cash Flow Test" (or its predecessor test) would be considered to be below the compliance standards if:

  • (a) average global market cap over a consecutive 30-trading-day period is less than $250 million and, at the same time, total revenues are less than $20 million over the last 12 months (unless the company qualifies as an original listing under one of the other original listing standards); or
  • (b) average global market cap over a consecutive 30-trading-day period is less than $75 million.
Issuers that list under the "Pure Valuation/Revenue Test" (or its predecessor test) would be considered to be below compliance standards if:

  • (a) average global market cap over a consecutive 30-trading-day period is less than $375 million and, at the same time, total revenues are less than $15 million over the last 12 months (unless the company qualifies as an original listing under one of the other original listing standards); or
  • (b) average global market capitalization over a consecutive 30-trading-day period is less than $100 million.
Companies that fall below the foregoing minimum standards could be permitted a period of time to return to compliance. As a general matter, companies must reestablish the level of market cap (and, if applicable, shareholder’s equity) specified in the continued listing standard below which the company fell. However, some of the previously available alternative routes to regaining compliance are being eliminated.

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