By: Cydney Posner

The SEC has approved a new NYSE rule regarding procedures for companies that do not file their annual reports on a timely basis. The NYSE rule codifies existing procedures and would apply with full effect to companies that are already late in filing their annual reports.

The new rules provide that, once the NYSE has identified a company that has not filed its annual report with the SEC by its due date (including the extended filing date permitted by Rule 12b-25), under new Paragraph 802.01E of the Listed Company Manual, it would notify the company in writing of its status. Within five days of receipt of this notification, the company would be required to

  • contact the NYSE to discuss the status of the annual report filing, and
  • if it has not already done so, issue a press release disclosing the status of the filing.
If the company failed to issue this press release in a timely manner, the NYSE would itself issue a press release stating that the company has failed to timely file its annual report with the SEC.

The NYSE would then monitor the company and the status of the filing during the nine-month period until the annual report is filed. If the company failed to file within nine months, the NYSE could, in its discretion, permit the company’s securities to be traded for up to an additional three-month trading period, depending on the circumstances. If the NYSE decided not to extend the trading period, suspension and delisting procedures would commence. (With respect to this criteria, a company would not be eligible to follow the procedures outlined in Paragraphs 802.02 and 802.03, which provide that, when a listed company is not in compliance with the continued listing criteria, the company is given the opportunity to provide a plan advising the NYSE of the definitive action the company intends to take that would bring it into conformity with continued listing standards. Late filers of annual reports would not be allowed any additional periods under these paragraphs. Instead, late filers would immediately proceed to delisting under Paragraph 804.00 if they were still out of compliance after the applicable period.) In determining whether to allow the additional trading period of up to three months, the NYSE would consider the likelihood that the filing could be made during the additional period, as well as the company’s general financial status, based on information provided by a variety of sources, including the company, its audit committee, its outside auditors, the SEC staff and any other regulatory body. Companies are also strongly encouraged to provide ongoing disclosure regarding the status of the annual report filing through press releases, and the NYSE will consider the frequency and detail of these releases in determining whether to allow an additional three-month trading period. If the additional period were allowed and the filing were not made within the period, the NYSE would commence suspension and delisting procedures. The NYSE may, however, suspend trading immediately and commence delisting procedures for a late annual report at any time the NYSE deems it necessary or appropriate in the public interest or for the protection of investors.

Interestingly, Nasdaq (the competition) submitted a comment letter on the proposal. In the letter, Nasdaq stated that the proposal does not "go nearly far enough to protect investors," that it does "not believe that a market should offer what is essentially a blanket nine months filing extension to delinquent issuers" and that "the NYSE should be required to adopt a more reasonable timeframe to respond to annual report filing delinquencies." Nasdaq noted that the issuer’s financial statements would be at least a year old at the end of NYSE’s nine-month period. In addition, Nasdaq stated that quarterly reports are an important element of information which is available to investors and that without current financials, it is impossible for a marketplace to determine whether a listed issuer complies with continued listing standards. Further, Nasdaq noted that its own procedures cover late annual and interim reports and, if an issuer fails to timely file required reports, it is promptly notified it will be delisted unless it appeals. In response to Nasdaq’s comments, the NYSE stated that, during the nine-month period, it is in frequent contact with the company and can suspend trading and delist the company at any point. The NYSE also noted that, as of the date of its letter, only six companies were delinquent in filing their annual report and that some of these companies were restating their financials in response to, or in conjunction with, an SEC investigation.

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