Nasdaq Global Select Market

By:  Cydney Posner

On July 1, Nasdaq will implement its proposal to rename the Nasdaq National Market as the Nasdaq Global Market and to create the Nasdaq Global Select Market, a new tier within the Nasdaq Global Market with higher initial listing standards.  Just to add to the confusion (as if the constant changing of the names of its markets weren't confusing enough), Nasdaq uses the phrase "Nasdaq Global Market" to refer to two different things: the "Nasdaq Global Market," or "NGM," a distinct tier of Nasdaq composed of two segments: the Nasdaq Global Market, the successor to the Nasdaq National Market, and the Nasdaq Global Select Market. Because the Nasdaq Global Market, including the Nasdaq Global Select segment, will be the successor to the Nasdaq National Market, Nasdaq believes that all securities listed on the Nasdaq Global Market, including those on the Nasdaq Global Select Market, will be "covered securities" under NSMIA (Section 18(b) of the Securities Act).

Listing Requirements

In addition to satisfying all of the applicable requirements of the Rule 4300 and 4400 series, an issuer seeking to be listed on the Nasdaq Global Select Market must comply with the requirements of Rule 4426, which includes minimum liquidity measures and a financial test, as well as a minimum bid price requirement:

Liquidity Requirements

• (1) The security must demonstrate either:
  • (A) (i) a minimum of 550 beneficial shareholders, and (ii) an average monthly trading volume over the prior 12 months of at least 1,100,000 shares per month; or
  • (B) a minimum of 2,200 beneficial shareholders; or
  • (C) a minimum of 450 beneficial shareholders, in the case of:
    • (i) an issuer listing in connection with its emergence from a bankruptcy or reorganization proceeding; or
    • (ii) an issuer that is affiliated with another company listed on the Global Select Market;
• (2) The security must have at least 1,250,000 publicly held shares (excluding shares held by an officer, director or 10% shareholder); and
• (3) The publicly held shares must have either:
  • (A) a market value of at least $110 million; or
  • (B) a market value of at least $100 million, if the issuer has stockholders’ equity of at least $110 million; or
  • (C) a market value of at least $70 million in the case of:
    • (i) an issuer listing in connection with its initial public offering;
    • (ii) an issuer that is affiliated with, or a spin-off from, another company listed on the Global Select Market; and
    • (iii) a closed end management investment company.

Financial Requirements. An issuer must meet the requirements of one of subparagraphs (1), (2) or (3):

• (1) The issuer must have:
  • (A) aggregate income from continuing operations before income taxes of at least $11 million over the prior three fiscal years;
  • (B) positive income from continuing operations before income taxes in each of the prior three fiscal years; and
  • (C) at least $2.2 million in income from continuing operations before income taxes in each of the two most recent fiscal years; or
• (2) The issuer must have:
  • (A) aggregate cash flows of at least $27.5 million over the prior three fiscal years;
  • (B) positive cash flows in each of the prior three fiscal years; and
  • (C) both:
    • (i) average market capitalization of at least $550 million over the prior 12 months; and
    • (ii) total revenue of at least $110 million in the previous fiscal year; or
• (3) The issuer must have both:
  • (A) average market capitalization of at least $850 million over the prior 12 months; and
  • (B) total revenue of at least $90 million in the previous fiscal year.

Price Requirement. An issuer not listed on the Nasdaq Global Market must have a minimum bid price of $5 per share. Companies transferring from the Nasdaq Global Market would have previously satisfied the bid price requirement in connection with the initial listing and would not be required to meet this requirement again when transferring to the new segment.

Rule 4427 provides guidance about computations made under Rule 4426, including guidance for issuers with fewer than three years of publicly reported financial information. Following initial listing, the same continued listing standards that are currently applicable to the Nasdaq Global Market will apply to issuers on the Nasdaq Global Select Market.

Initial Launch Process

In connection with the initial launch of the Global Select Market, Nasdaq will assign qualified Global Market companies to the new Global Select segment. In addition, qualified Capital Market companies will be given the opportunity to be included in the new segment. Nasdaq's initial assessment will be based on the most recent financial data filed as of April 28, 2006, and market data as of April 28, 2006. For purposes of satisfying the liquidity tests, any company that initially listed as an IPO since May 1, 2005 will be treated as an IPO. For purposes of the market cap requirements of Rules 4426(c)(2) and (c)(3), any company that initially listed as an IPO since May 1, 2005 must have the applicable average market cap from the date of listing. As a special dispensation, Nasdaq will allow any Nasdaq-listed issuer that meets the NYSE initial listing standards as of July 2006, but that does not qualify for the Global Select segment at that time, to be included in the Global Select Market, subject to a grace period until January 1, 2008 to achieve compliance with all listing criteria for the Global Select Market. If the criteria are not satisfied at that point, the issuer will be moved to the Nasdaq Global Market and will remain subject to delisting in the event it fails to satisfy any of the continued listing requirements for the Nasdaq Global Market.

Post-launch Process

After the initial launch, an issuer that applies for listing on the Nasdaq Global Market and meets the requirements for initial listing will be listed on the Nasdaq Global Select Market. Each October, beginning in October 2007, Nasdaq will review the qualifications of all securities listed on the Nasdaq Global Market that are not included in the Nasdaq Global Select Market. Any security that meets the requirements for initial listing on the Nasdaq Global Select Market contained in Rule 4426 at the time of this review will be transferred to the Global Select Market the following January, provided it meets the continued listing criteria at that time. (Note that a company designated in October will be placed in the Global Select segment even if it falls below the initial listing requirements in January, unless it fails to satisfy even the Nasdaq Global Market criteria, is delinquent in filing its periodic reports or the staff has raised public interest concerns.) In addition, issuers may, at any time, apply to transfer a security listed on the Nasdaq Global Market to the Nasdaq Global Select Market. If approved, the transfer will be effected as soon as practicable. Issuers will not owe any application or entry fees in connection with these transfers; however, issuers transferring from the Nasdaq Capital Market to the Nasdaq Global Select Market will be required to pay the applicable fee. After initial inclusion on the Nasdaq Global Select Market, an issuer will remain in that segment so long as it continues to meet the applicable requirements of the Rule 4300 and 4400 series, including the qualitative requirements of Rule 4350 and IM-4300.

Until the underlying deficiency is resolved, transfers to the Global Select Market will not be permitted if the issuer is not in compliance with a qualitative listing requirement that does not provide for a grace period or where Nasdaq staff has raised a public interest concern, where the issuer is below a quantitative continued listing requirement for the Nasdaq Global Market, even if the issuer has not been below the requirement for a sufficient period of time to be considered non-compliant, where the issuer is in a grace or compliance period with respect to a quantitative listing requirement, or where the issuer is before a Nasdaq Listing Qualifications Panel. By contrast, where an issuer is in a grace or compliance period with respect to a qualitative listing standard, transfer would be permitted, subject to the continuation of that grace period.