By Cydney Posner

The SEC has approved more stringent new SRO listing standards for companies going public through reverse mergers. (See my article of 6/24/11.)

The SEC has, for quite a while, had concerns regarding the accuracy and quality of financial results audits of companies based overseas going public though reverse mergers (see my article of 6/9/11). The SEC reports that, in recent months, it or the exchanges have suspended or halted trading in more than 35 companies based overseas on the basis of a lack of current and accurate information about the firms and their finances. These included a number of companies that were formed by reverse mergers. The heightened listing requirements are designed to provide additional protection for investors.

Under the new rules, Nasdaq, NYSE and NYSE Amex would prohibit a reverse merger company from applying to list until:

  • The company has completed a one-year "seasoning period" by trading in the U.S. over-the-counter market or on another regulated U.S. or foreign exchange following the reverse merger, and filed all required reports with the SEC, including audited financial statements.
  • The company maintains the requisite minimum share price for a sustained period, and for at least 30 of the 60 trading days, immediately prior to its listing application and the exchange's decision to list.

Under the rules, the reverse merger company generally would be exempt from these special requirements if it is listing in connection with a substantial firm commitment underwritten public offering, or the reverse merger occurred long ago so that at least four annual reports with audited financial information have been filed with the SEC.

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