Update: Nasdaq Proposes to Require Companies to Amplify Disclosure re Listing Deficiencies

News Brief

By Cydney Posner

Update to the News Brief originally published November 5, 2012 - The rule proposal described below has been approved. View the order here.

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In October, the SEC posted this proposed Nasdaq rule change related to disclosure requirements in the event of noncompliance with a listing standard. The rule will be implemented on approval.

Under Nasdaq Rule 5810(b), a listed company that receives a notification of deficiency, staff delisting determination or public reprimand letter is required, as promptly as possible, but not more than four business days after receipt, to make a public announcement disclosing receipt of the notification and the rules on which the deficiency is based. The company  must make the public announcement by filing a Form 8-K, where required by SEC rules, or by issuing a press release, except that, if the notification relates to a failure to meet the requirements of Rules 5250(c)(1) or (2) (which relate to the company's obligation to timely file periodic reports), the company must issue a press release.

Nasdaq has observed, however, that some companies do not provide adequate information about these deficiencies, especially where the deficiency is a qualitative one (i.e., not just a bid price deficiency), and instead merely disclose the rule number and describe the rule. Nasdaq believes that, to allow investors to make fully informed investment decisions, companies must provide sufficient additional disclosure to enable the public to understand the deficiency or its underlying basis. For example, Nasdaq believes it is inadequate to simply disclose that Nasdaq has determined to delist the company for "public interest concerns under Rule 5101" without describing the nature of those concerns.

Accordingly, Nasdaq has proposed to modify Rule 5810(b) and IM-5810-1 to expressly require that, in addition to identification of the rules on which the deficiency is based, the company's public announcement "describe each specific basis and concern identified by Nasdaq in reaching its determination that the Company does not meet the  listing standard." For example, if Nasdaq determines to delist a company based on its discretionary authority under Rule 5101, the company must also include in its public announcement the specific concerns cited in the staff delisting determination. The company could, however, include its own analysis of the issues raised in the determination, for example, by describing its plan to regain compliance or even describing the reasons why it believes it should not be delisted, as long as the description is accurate and not misleading,

In addition, Nasdaq is concerned that, if trading in the company's securities has already been halted, companies could decline to make the required disclosure because the only remedy available to Nasdaq is a trading halt. Accordingly, under the proposed amendment, if the public announcement is not made by the company within the time allotted or does not include all of the required information, Nasdaq may, in addition to halting trading of the company's securities, make a public announcement on its own with the required information that the company failed to provide.  In addition, under the proposed amendment, to maintain the quality of and public confidence in its market and to protect investors and the public interest, Nasdaq may, at any level of a proceeding under the Rule 5800 Series, make a public announcement, including by press release, describing a notification, public reprimand letter, staff delisting determination, adjudicatory body decision, or other event involving a company's listing or trading on Nasdaq. If the company's failure to make this public announcement is the only basis for a trading halt, Nasdaq would ordinarily resume trading if Nasdaq makes the public announcement. If the company fails to make the public announcement by the time that the Hearings Panel issues its decision, that decision will also determine whether to delist the company's securities for failure to make the public announcement.

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