
[Federal Register: February 5, 2010 (Volume 75, Number 24)]
[Notices]               
[Page 6072-6077]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr05fe10-135]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-61446; File No. SR-NASDAQ-2009-077]

 
Self-Regulatory Organizations; The NASDAQ Stock Market LLC; Order 
Approving Proposed Rule Change To Modify the Procedures Followed When a 
Listed Company Falls Below Certain Listing Requirements

January 29, 2010.

I. Introduction

    On August 17, 2009, The NASDAQ Stock Market LLC (``Nasdaq'' or 
``Exchange'') filed with the Securities and Exchange Commission 
(``Commission''), pursuant to Section 19(b)(1) of the Securities 
Exchange Act of 1934 (``Act'') \1\ and Rule 19b-4 thereunder,\2\ a 
proposed rule change to modify the length of certain compliance periods 
in Nasdaq's continued listing requirements and to modify the time 
available for a company to provide a plan to regain compliance with 
certain listing requirements.\3\ The proposed rule change was published 
for comment in the Federal Register on September 8, 2009.\4\ The 
Commission received three comment letters on the proposal.\5\ On 
December 28, 2009 the Exchange filed a response to the comment 
letter.\6\ This order approves the proposed rule change.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ Nasdaq is also proposing to eliminate certain abbreviations 
that are used inconsistently and utilize defined terms, as 
appropriate, in Rules 5810 and 5840, and to remove authority in Rule 
5810(c)(2)(C) that is duplicated in Rule 5810(c)(2)(B).
    \4\ See Securities Exchange Act Release No. 46267 (September 2, 
2009), 74 FR 46267 (``Notice'').
    \5\ See letter from Barbara Roper, Director of Investor 
Protection, Consumer Federation of America, to Elizabeth M. Murphy, 
Secretary, Commission, dated September 28, 2009 (``CFA Comment 
Letter''); letter from Alan F. Eisenberg, Executive Vice President, 
Biotechnology Industry Organization (``BIO'') to Elizabeth M. 
Murphy, Secretary, Commission, dated September 29, 2009 (``BIO 
Comment Letter''); and letter from Jason S. Frankl, Senior Managing 
Director, FTI Consulting (``FTI''), to Elizabeth M. Murphy, 
Secretary, Commission, dated October 5, 2009 (``FTI Comment 
Letter'').
    \6\ See letter from Arnold Golub, Vice President and Associate 
General Counsel, Nasdaq, to Elizabeth Murphy, Secretary, Commission, 
dated December 28, 2009 (``Nasdaq Response Letter'').
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II. Description of the Proposal

Price Related Criteria

    Under Nasdaq's current continued listing requirements relating to 
market value of listed securities, a company is considered to be non-
compliant after falling below the standard for 10 consecutive trading 
days.\7\ Thereafter, the company is provided 90 calendar days to regain 
compliance with the market value of listed securities requirement. 
Further, Nasdaq's current continued listing rules relating to market 
value of publicly held shares provide that a company is deficient if it 
is below the standard for 30 consecutive trading days. Upon such 
failure, the company is provided with 90 calendar days to regain 
compliance.\8\
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    \7\ Nasdaq Rule 5810(b)(3)(C). NASDAQ changed the period to 
regain compliance with the market value of listed securities 
requirement from 30 to 90 days in January of last year. Securities 
Exchange Act Release No. 59291 (January 23, 2009), 74 FR 5197 
(January 29, 2009) (SR-NASDAQ-2009-002).
    \8\ Nasdaq Rule 5810(b)(3)(D).
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    Nasdaq proposes to modify the length of time required to trigger 
non-compliance with the market value of listed securities requirement 
and to modify the compliance periods associated with the Exchange's 
market value of listed securities and market value of publicly held 
shares continued listing requirements. Nasdaq notes that, under its bid 
price continued listing standard, if a company's security has a closing 
bid price below $1.00 for 30 consecutive trading days, it no longer 
meets the bid price requirement and is automatically provided 180 
calendar days to regain compliance.\9\ Nasdaq asserts that because 
compliance with each of these rules is directly related to the price of 
an issuer's security, the length of time to trigger non-compliance, and 
the amount of time afforded as a compliance period, should be 
consistent. As such, Nasdaq proposes to lengthen the period that a 
company would need to be below the market

[[Page 6073]]

value of listed securities requirement before being considered non-
compliant from 10 to 30 consecutive trading days. Nasdaq also proposes 
to extend from 90 to 180 days the compliance period in which companies 
that are non-compliant with the market value of listed securities and 
market value of publicly held shares requirements can regain 
compliance.\10\ Nasdaq notes that it believes that the existing 90-day 
time frames do not provide sufficient time for a company to regain 
compliance.
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    \9\ Nasdaq Rule 5810(b)(3)(A).
    \10\ In its filing, Nasdaq noted that it could apply its 
authority described in Nasdaq Rule 5100 to delist a security during 
a compliance period if the market value of listed securities or 
market value of publicly held shares was so low that delisting is 
necessary to maintain the quality of and public confidence in the 
market, to prevent fraudulent and manipulative acts and practices, 
and to protect investors and the public interest.
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    As revised, the maximum amount of time that could be afforded to a 
company that failed to meet the market value of listed securities or 
market value of publicly held shares requirements would be 18 
months.\11\
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    \11\ A company could only receive an extension up to this 18-
month maximum length if: (i) It failed to comply during the 
automatic 180-day compliance period; (ii) the company appealed to a 
Hearings Panel; and (iii) the Nasdaq Listing and Hearing Review 
Council (``Listing Council'') determined to call the matter for 
review, stay the company's delisting, and, after reviewing the 
company's compliance plan, provide the company with the maximum 360-
day period from the date of the Staff Delisting Determination to 
regain compliance.
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Requirements With Respect to Compliance Plans

    Nasdaq also proposes to modify the periods applicable in cases 
where a company can provide Nasdaq staff with a plan to regain 
compliance, such as when a company fails to meet the minimum 
requirements for stockholders' equity, the number of publicly held 
shares, or the number of shareholders.\12\ Currently, companies are 
provided 15 calendar days to submit a plan to regain compliance. 
Following a review of the plan, staff can grant the company a period of 
up to 105 calendar days from the initial notification of non-compliance 
for the company to regain compliance. Nasdaq proposes to increase the 
number of calendar days a company has to present its plan from 15 to 
45, and to permit staff to grant up to a 5-day extension of this period 
upon good cause shown.\13\ Nasdaq asserts that 15 days is often 
insufficient for a company to formulate a meaningful plan, particularly 
in the current market and economic conditions. Further, Nasdaq proposes 
to increase from 105 to 180 the number of calendar days for which staff 
can grant an extension of time to regain compliance from its initial 
notification of non-compliance.\14\ Nasdaq states that this additional 
time will better allow companies to implement a plan to regain 
compliance.
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    \12\ Nasdaq Rule 5810(c)(2) and IM-5810-2 provide the procedures 
governing deficiencies for which a company may submit a plan of 
compliance to Nasdaq staff. Nasdaq has posted frequently asked 
questions at http://www.nasdaq.com/about/faqs-listing-information-
questions.stm#continued, which discuss the information a company 
should consider in preparing its plan of compliance.
    \13\ Nasdaq anticipates that this authority would be used to 
address cases where the company could not timely submit its plan due 
to events outside the control of the company, such as when severe 
weather interferes with the company's ability to provide the 
necessary information before the deadline.
    \14\ Nasdaq states that staff will determine whether to allow 
the company additional time, and if so how much time to allow, based 
on a review of the company's plan of compliance.
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    As revised, the maximum amount of time that could be afforded to a 
company that failed to meet a listing requirement that allows the 
submission of a plan to regain compliance would be 18 months.\15\
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    \15\ A company could only receive an extension up to this 18-
month maximum length if: (i) After reviewing the company's 
compliance plan, Nasdaq staff granted the company the maximum 180-
day period to regain compliance; (ii) the company failed to comply 
within the time allowed by staff and appealed to a Hearings Panel; 
and (iii) the Nasdaq Listing Council determined to call the matter 
for review, stay the company's delisting, and, after reviewing the 
company's compliance plan, provide the company with the maximum 360-
day period from the date of the Staff Delisting Determination to 
regain compliance.
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Implementation

    Nasdaq states that any company that had not yet been notified that 
it was non-compliant with the market value of listed securities 
requirement upon Commission approval of the proposed rule change will 
not be notified until they are below the requirement for 30 consecutive 
trading days.\16\ Any company that has already been notified that it 
was non-compliant with either the market value of listed securities 
requirement or the market value of publicly held shares requirement and 
that is still in the 90 calendar day compliance period for such failure 
will have their compliance period extended until 180 calendar days from 
the date they were originally notified of the deficiency.\17\ No 
additional time will be provided to a company that has received a Staff 
Delisting Determination for failure to meet either of those 
requirements before the proposed rule change is approved.\18\
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    \16\ For example, if a security is below the market value of 
listed securities requirement for 7 consecutive trading days when 
the proposed rule is approved, the company would not be notified 
that it is deficient unless and until the security remains below the 
requirement for another 23 consecutive trading days, such that it 
remained below for a total of 30 consecutive trading days.
    \17\ For example, if a company had been notified that its 
security was below either the market value of listed securities or 
market value of publicly held shares requirement 30 days before the 
proposed rule is approved, such that it had 60 days remaining in its 
compliance period, that compliance period would be extended by 90 
days so that the company would have 150 days remaining in the 
compliance period.
    \18\ For example, if a company had been notified that its 
security was below either the market value of listed securities or 
market value of publicly held shares requirement 95 days before the 
proposed rule is approved, the company would not receive any 
additional time as a result of the proposed rule change. Such 
companies would continue through the Hearings and Appeals process, 
however, and could receive additional time as provided for in Nasdaq 
Rules 5815(c)(1)(A) and 5820(d)(1).
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    With respect to the proposed changes to the compliance plan 
process, if a company has not yet submitted its plan of compliance when 
the proposed rule change is approved, the deadline to submit that plan 
will be extended until 45 days from the date of staff's notification of 
the deficiency. If the company has submitted its plan of compliance 
when the proposed rule change is approved, but staff has not yet made a 
determination with respect to whether to grant additional time, staff 
will be permitted to grant the company up to 180 days from staff's 
notification of the deficiency to regain compliance. If the company has 
already received an extension of time to regain compliance from staff 
when the proposed rule change is approved,\19\ at the end of that 
exception staff could, based on a review of the company at the time, 
grant additional time for the company to regain compliance, up to 180 
days from staff's original notification of the deficiency.\20\ No 
additional time will be provided to a company that has already received 
a Staff Delisting Determination at the time the proposed rule change is 
approved.\21\
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    \19\ Nasdaq Rule 5810(c)(2)(B)(i).
    \20\ The proposal to allow a company additional time at the end 
of its extension based on staff's further review of the company is 
consistent with Nasdaq's current practice of potentially allowing a 
company additional time if it was not initially granted the full 105 
days allowed by current Nasdaq Rule 5810(c)(2)(B)(i).
    \21\ Such companies would continue through the Hearings and 
Appeals process, however, and could receive additional time as 
provided for in Nasdaq Rules 5815(c)(1)(A) and 5820(d)(1).
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III. Comment Summary

    In its comment letter, CFA raises several concerns regarding the 
Exchange's proposal.\22\ First, CFA argues that the Exchange's proposal 
will lead to a proliferation of lengthy automatic compliance periods 
for companies that fall below listing standards, potentially allowing 
large numbers of non-compliant companies to

[[Page 6074]]

remain listed for extended periods of time with little or no 
oversight.\23\ In response, the Exchange states that it continuously 
monitors each listed company for compliance with the listing rules and 
determines whether any public interest concerns exist that may make 
continued listing inappropriate.\24\ In particular, the Exchange notes 
that notwithstanding the automatic compliance periods, Nasdaq staff has 
the authority to apply additional and more stringent criteria to 
shorten a compliance period or delist a company before the end of the 
compliance period if it believes that the continued listing of a 
company would be contrary to the public interest.\25\
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    \22\ See CFA Comment Letter, supra note 5.
    \23\ Id.
    \24\ The Exchange notes that such monitoring includes staff 
review of virtually every SEC filing made by listing companies, 
including proxies and annual and quarterly financial reports. See 
Nasdaq Response Letter, supra note 6, at 3.
    \25\ See Nasdaq Response Letter, supra note 6, at 1-2.
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    In addition, CFA notes that while Nasdaq has stated that the 
proposed rule change is intended to harmonize and ensure consistency in 
the compliance periods across its continued listing rules, Nasdaq has 
chosen to apply its least restrictive compliance period (i.e., its 
longest compliance period of 180 days).\26\ The CFA asserts that if 
harmonization is needed, Nasdaq should instead ``harmonize up, not 
down'' and apply its shorter compliance periods consistently across its 
rules.\27\ In the Nasdaq Response Letter, the Exchange asserts that its 
experience has shown that many of the current compliance periods are 
too short, particularly given the extraordinary volatility in the 
securities markets over the past decade.\28\ Specifically, the Exchange 
notes that in its experience, and as also noted in the BIO Comment 
Letter, the existing time periods do not sufficiently account for daily 
market fluctuations, and given the changes that have taken place in the 
financial markets, the existing time periods are unreasonably 
short.\29\ Further, the Exchange notes that the proposed longer 
compliance periods are in line with the compliance periods afforded by 
other exchanges.\30\ For example, Nasdaq states that the NYSE Amex 
rules provide that staff can grant a company up to 18 months to regain 
compliance with its market value of publicly held shares requirement, 
and the NYSE rules allow staff to provide a company with up to 18 
months to regain compliance with its market capitalization 
requirement.\31\
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    \26\ See CFA Comment Letter, supra note 5.
    \27\ Id.
    \28\ See Nasdaq Response Letter, supra note 6, at 1 and 3.
    \29\ See Nasdaq Response Letter, supra note 6, at 3.
    \30\ See Nasdaq Response Letter, supra note 6, at 3.
    \31\ See Nasdaq Response Letter, supra note 6, at 3.
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    CFA also argues that the proposal to allow an automatic 180-day 
grace period for the market value of publicly held shares and market 
value of listed securities requirements raises particular concerns.\32\ 
Specifically, CFA states that the market value standard is an 
alternative to the stockholders' equity requirement, and thus companies 
listing under this standard are companies that fail to meet the minimum 
stockholders' equity requirement.\33\ Further, CFA notes that Nasdaq 
recently extended the period to regain compliance with the market value 
of listed securities requirement from 30 to 90 days, and that this 
proposed rule change would now allow a company a total of 210 days of 
non-compliance before a hearing.\34\ CFA also questions why the 180-day 
automatic grace period is preferable to a case-by-case review.\35\
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    \32\ See CFA Comment Letter, supra note 5.
    \33\ Id.
    \34\ In arriving at this figure, CFA is including in its 
calculation the 30-day period required to trigger non-compliance.
    \35\ See CFA Comment Letter, supra note 5.
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    The Exchange responds that these revised time periods are 
consistent with the Exchange's current bid price rule.\36\ 
Specifically, like the bid price rule, a company would be found to be 
non-compliant only after it falls below the current threshold for 30 
days and would thereafter be afforded 180 days to regain 
compliance.\37\ Nasdaq also notes that the maximum total time period 
that a company that failed to meet the market value of listed 
securities or market value of publicly held shares requirements could 
remain listed would be 18 months, which is consistent with the 
compliance periods available at other markets.\38\ With regard to CFA's 
suggestion that Nasdaq should consider a case-by-case review of 
companies below the requirements rather than granting an automatic 180-
day compliance period, Nasdaq states that for price-related listing 
requirements, automatic periods provide a transparent, objective 
process, which is more appropriate than subjective reviews.\39\ 
Further, it notes that such a process provides clear guidance to 
companies and their investors.\40\
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    \36\ See Nasdaq Response Letter, supra note 6, at 2.
    \37\ See Nasdaq Response Letter, supra note 6, at 2.
    \38\ See Nasdaq Response Letter, supra note 6, at 2 (citing 
Section 802.02 of the NYSE Listed Company Manual). Nasdaq notes 
that, as described in the notice of the proposed rule change, a 
company that receives a delisting letter after the 180-day 
compliance period may appeal the delisting decision to the Hearings 
Panel, which can grant up to an additional 180 day to regain 
compliance. Thereafter, the company could remain listed for an 
additional 180 days if the Nasdaq Listing Council were to call the 
matter for review, stay the company's delisting, and determine to 
grant additional time. In the Nasdaq Response Letter, the Exchange 
states that it would be highly unusual for the Listing Council to 
take such action and noted that it does not believe that the Listing 
Council has ever exercised its discretion to stay a delisting to 
allow a company additional time to regain compliance with a price-
based listing requirement.
    \39\ See Nasdaq Response Letter, supra note 6, at 4.
    \40\ Id.
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    CFA also asserts that Nasdaq should be required to provide a 
variety of additional information to support its proposal.\41\ For 
example, CFA suggests that Nasdaq should provide further data regarding 
its discretionary authority to delist a security during a compliance 
period; \42\ supplementary information regarding compliance plans and 
compliance periods granted by staff; and statistics on the 180-day plan 
process that was adopted last fall for companies that are late in 
filing their periodic reports.\43\ The FTI Comment Letter expressed 
support for this portion of CTA's comment letter asserting that Nasdaq 
should be required to provide additional information and rationale in 
support of its proposal.\44\ In response, the Exchange states that the 
request for additional information is not appropriate or necessary for 
consideration of the proposed rule change. Rather, Nasdaq asserts that 
the proposed rule change satisfies the relevant statutory standards, 
and data concerning Nasdaq's historic enforcement of listing standards 
is already disclosed in Nasdaq OMX's public filings with the Commission 
and is not necessary for consideration of this proposal.\45\
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    \41\ See CFA Comment Letter, supra note 5.
    \42\ See supra note 10.
    \43\ See CFA Comment Letter, supra note 5.
    \44\ See FTI Comment letter, supra note 5.
    \45\ See Nasdaq Response Letter, supra note 6, at 5.
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    Finally, the CFA Comment Letter suggests that the Commission should 
review the economic impact of the proposed rule change on the exchange 
and should require greater independence in Nasdaq's delisting process 
if such rule changes are found to benefit Nasdaq's financial 
position.\46\

[[Page 6075]]

FTI also expressed support for this portion of the CFA Comment 
Letter.\47\ In its response, Nasdaq states that it has a transparent, 
independent enforcement process in place to support its listing 
standards.\48\ Specifically, Nasdaq notes that its staff has very 
limited discretion to grant an extension to a company that does not 
comply with a listing requirement, and many rules provide for automatic 
compliance periods rather than compliance periods determined by Nasdaq 
staff.\49\ The Nasdaq Response Letter also describes the independence 
of the delisting process with regard to price-based listing 
requirements.\50\ In particular, Nasdaq notes that after the 180-day 
automatic compliance periods runs, Nasdaq staff has no discretion to 
allow the company to continue trading and must issue a delisting 
letter.\51\ A company may appeal that delisting letter to a Hearings 
Panel, which is independent of Nasdaq and includes no Nasdaq 
employees.\52\ Thereafter, another independent body, the Nasdaq Listing 
and Hearing Review Council (``Listing Council''), would be the only 
body with the ability to call the matter for review and determine to 
grant additional time to the company.\53\ Nasdaq also states that its 
Listing Qualifications Department is housed in a regulation group that 
is organizationally and institutionally separate than its business 
lines and is directly accountable to the Regulatory Oversight Committee 
of the Nasdaq Board.\54\
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    \46\ See CFA Comment Letter, supra note 5. The CFA Comment 
Letter also provides an additional recommendation that is not aimed 
at this particular rule proposal. Specifically, CFA argues that more 
should be done to require exchanges to identify and alert investors 
of noncompliant companies. Nasdaq responded to this assertion in its 
Response Letter by noting that companies are required to make public 
disclosure that they are non-compliant with listing standards, and 
Nasdaq includes the company on the list of non-compliant companies 
on its Web site and displays such information to investors viewing 
the company's quotation. Further, Nasdaq has a display requirement 
for vendors that display Nasdaq's data feed, which requires them to 
show the company's noncompliance. Nasdaq did acknowledge that 
vendors that do not obtain quotation information from Nasdaq may not 
display this information. See Nasdaq Response Letter, supra note 6, 
at footnote 4.
    \47\ See FTI Comment Letter, supra note 5, at 1.
    \48\ See Nasdaq Response Letter, supra note 6, at 1.
    \49\ See Nasdaq Response Letter, supra note 6, at 1.
    \50\ See id. at 2.
    \51\ See id.
    \52\ See id.
    \53\ See id. Nasdaq notes, however, that it would be highly 
unusual for the Listing Council to take such action.
    \54\ See id.
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    The BIO Comment Letter generally supported the Exchange's 
proposal.\55\ In particular, the BIO Comment Letter stated that 
extending the number of days from 10 to 30 to trigger non-compliance 
with the market value of listed securities requirement would allow 
biotechnology companies to regain some stability during daily market 
fluctuations that persist for emerging biotechnology companies.\56\ The 
BIO Comment Letter also expressed support for the portion of the 
proposal providing companies 45 days to submit a plan to regain 
compliance, noting that this increase will provide companies the 
necessary time to work with their investors to secure a long-term plan 
that will bring them back into compliance with listing standards.\57\
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    \55\ See BIO Comment Letter, supra note 5.
    \56\ Id.
    \57\ Id. In addition, the BIO Comment Letter provided requests 
for Nasdaq to further modify certain of its continued listing 
standards and compliance periods. Because those requests do not 
relate to the current proposed rule change before the Commission, 
they will not be discussed in this Order.
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IV. Discussion

    After careful review, the Commission finds that the proposed rule 
change is consistent with the requirements of the Act and the rules and 
regulations thereunder applicable to a national securities exchange 
and, in particular, with Section 6(b)(5) of the Act,\58\ which 
requires, among other things, that the rules of a national securities 
exchange be designed to prevent fraudulent and manipulative acts and 
practices, to promote just and equitable principles of trade, to remove 
impediments to, and perfect the mechanism of, a free and open market 
and a national market system and, in general, to protect investors and 
the public interest.\59\
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    \58\ 15 U.S.C. 78f(b)(5).
    \59\ In approving this proposed rule change, the Commission has 
considered the proposed rule's impact on efficiency, competition, 
and capital formation. See 15 U.S.C. 78c(f).
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    The Commission notes that the development and enforcement of 
adequate standards governing the initial and continued listing of 
securities on an exchange is an activity of critical importance to 
financial markets and the investing public. The Commission continues to 
believe that enforcement of continued listing standards are important 
to ensure that only companies suitable for listing remain trading on 
national securities exchanges. While the Commission would be concerned 
about any national securities exchange's proposal that would allow 
companies falling below continued listing standards to remain listed 
for an extended period of time, the Commission has determined to 
approve the Nasdaq's proposal for the reasons discussed below.
    The Commission believes that the Exchange's proposal to extend from 
90 to 180 days the period in which companies, that are non-compliant 
with the market value of listed securities and market value of publicly 
held shares requirements, can regain compliance, will better align the 
compliance period for these continued listing standards with the 
automatic 180 day compliance period already provided in Nasdaq's rules 
for noncompliance with the bid price requirement, as well as the rules 
of other markets. As such, the Commission believes that the proposal 
should reduce investor confusion over the compliance periods available 
under Nasdaq's price-related continued listing requirements.\60\ 
Further, the change should provide companies with additional time to 
take actions that may be necessary to regain compliance, such as 
obtaining shareholder approval and registering shares.
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    \60\ Under Nasdaq's current rules, if a company's security has a 
closing bid price below $1 for 30 consecutive trading days, it is 
deemed to be non-compliant with the bid price requirement and is 
automatically provided 180 calendar days to regain compliance. See 
Nasdaq Rule 5810(b)(3)(A).
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    The CFA Comment Letter takes issue with the extension of the 
automatic compliance period for these continued listing standards to 
180 days, expressing concern about non-compliant companies remaining 
listed on the Exchange for extended periods of time. However, as the 
Exchange has represented in the Notice and in the Nasdaq Response 
Letter, the maximum amount of time that could be afforded to a company 
that falls out of compliance with the market value of listed securities 
or market value of publicly held shares requirements would be 18 
months.\61\ The Exchange further stated in its Response Letter that it 
is highly unusual for the Listing Council to stay a company's delisting 
and grant additional time to regain compliance and that it does not 
believe that the Listing Council has ever exercised its discretion to 
take such action for a price-based delisting decision.\62\ The 
Commission also notes that this maximum length of time of 18 months 
\63\ is consistent with the maximum amount of time that the NYSE and 
NYSE Amex can provide for a listed company to regain compliance with 
its similar continued listing standards.\64\ Further, the Exchange has 
represented that it has the authority under Nasdaq Rule 5100 to delist 
a

[[Page 6076]]

security during a compliance period if the market value of listed 
securities or market value of publicly held shares was so low that 
delisting is necessary to maintain the quality of and public confidence 
in the market, to prevent fraudulent and manipulative acts and 
practices, and to protect investors and the public interest. 
Notwithstanding the lengthened automatic compliance periods afforded to 
issuers under the proposed rule change, the Commission expects Nasdaq 
to use its authority to delist issuers in a prompt, efficient and fair 
manner where necessary and appropriate in accordance with Nasdaq Rule 
5100, especially in those situations where the market value of a 
company's stock is so low as to make continued trading unwarranted.
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    \61\ As noted, this maximum 18 month compliance time only exists 
assuming every maximum compliance period is granted and an appeal 
was called for review by Nasdaq's Listing Council. See supra note 
11.
    \62\ See supra note 38.
    \63\ See supra note 11.
    \64\ See Section 802.02 of the NYSE Listed Company Manual and 
Section 1009 of the NYSE Amex Company Guide.
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    The Commission also believes that Nasdaq's proposal to extend the 
period that a company would need to be below the minimum market value 
of listed securities requirement before being deemed non-compliant from 
10 to 30 consecutive trading days is appropriate and consistent with 
the Act. The Commission notes that this change will further harmonize 
Nasdaq's price-related continued listing requirements, as the bid price 
and market value of publicly held shares requirements currently provide 
that a company is not deficient until it falls below the respective 
standard for 30 consecutive trading days. Further, as noted in the 
Nasdaq Response Letter, this time period is consistent with, and in 
some cases more stringent than, the threshold time periods on other 
exchanges. Specifically, on NYSE Amex, a company is deemed to be non-
compliant with the market value of publicly held shares requirement 
only after it has been below the standard for 90 consecutive days.\65\ 
In addition, a company is considered non-compliant with the NYSE's 
market capitalization requirement after the company falls below the 
standard for 30 consecutive trading days.\66\
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    \65\ See Nasdaq Response Letter, supra note 6, at 3.
    \66\ See Nasdaq Response Letter, supra note 6, at 3.
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    With regard to deficiencies for which a company can provide staff 
with a plan to regain compliance,\67\ the Commission believes that 
increasing from 105 to 180 the maximum number of calendar days for 
which staff can grant an extension of time from its initial 
notification of non-compliance will provide companies with additional 
time that may be necessary to implement a plan to regain compliance 
where appropriate. The Commission notes that the maximum time period of 
180 days is not an automatic grace period, but rather each company's 
compliance period will be determined by Nasdaq staff after review of 
the company's compliance plan.
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    \67\ See Nasdaq Rule 5810(c)(2) and IM-5812.
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    Accordingly, the Commission expects Nasdaq staff to conduct a 
thorough case-by-case review of each company's plan of compliance, and 
make an individualized determination as to the extension of time that 
is appropriate for a particular company. In addition, even with this 
change, the Commission notes that the total maximum amount of time that 
could be afforded to a company that failed to meet a listing 
requirement that allows for the submission of a plan to regain 
compliance would be 18 months, and this maximum 18 months assumes all 
compliance periods are extended to the permissible maximum during the 
appeal process by the Hearings Panel and Listing Council.\68\ As 
discussed above, this time period is consistent with the maximum amount 
of time a company is permitted to regain compliance with similar 
continued listing standards under NYSE's rules.\69\
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    \68\ See supra note 15.
    \69\ See supra note 64.
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    The Commission believes that Nasdaq's proposal to increase from 15 
to 45 days the length of time a company has to submit a plan to regain 
compliance should provide companies with additional time to devise a 
meaningful and workable plan to regain compliance. Further, the 
Commission notes that this revised time period is consistent with the 
NYSE's rules, which generally provide a company with 45 days from 
receipt of a letter of non-compliance to submit a plan to regain 
compliance.\70\ We further note that the 45 days does not extend the 
maximum time period the staff can allow for compliance.\71\
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    \70\ Section 802.02 of the NYSE Listed Company Manual.
    \71\ For example, if the plan is submitted 45 days after 
notification of non-compliance, staff could only grant an additional 
135 days to regain compliance.
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    Finally, the Commission notes that while the additional, specific 
information that the CFA argued should be provided by Nasdaq on issues 
such as the historic enforcement of Nasdaq's listing standards might be 
useful for many purposes, it agrees with Nasdaq that such data and 
information is not required in order for the Commission to find that 
the current proposed rule change is consistent with the Act.\72\ In 
addition, the Commission believes that the CFA's call for greater 
independence in Nasdaq's delisting process is not an issue that is 
directly before the Commission in this proposed rule change. The rules 
governing and outlining the current delisting process of the Exchange 
have been reviewed by the Commission and approved as being consistent 
with the Act. As noted above, many of the changes proposed in the 
current rule filing involve the lengthening of automatic threshold or 
compliance periods that are not subject to the discretion of Nasdaq 
staff. While Nasdaq is lengthening from 105 to 180 the maximum number 
of calendar days for which staff can grant an extension of time for 
compliance with regard to those deficiencies for which a company can 
provide staff with a plan to regain compliance, the Commission does not 
believe that this changes the independence of the Hearings Panel and 
Listing Council. Although we recognize that the staff will have more 
discretion in setting the initial length of the compliance period for 
certain deficiencies, upon appeal, any delisting for non-compliance 
will continue to be reviewed by independent panels. In addition, as 
noted, the maximum length of time permitted under the proposed rule 
change is consistent with other markets' rules.\73\
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    \72\ The Commission notes that as a registered national 
securities exchange, the Commission has oversight over Nasdaq's 
enforcement of its rules, including the delisting rules and process.
    \73\ See supra note 64.
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    In summary, as noted above, the Commission believes that 
enforcement of continued listing standards is of critical importance to 
our financial markets and investing public and, among other things 
helps to ensure that exchange traded securities have adequate depth and 
liquidity necessary to promote fair and orderly markets. While the 
Nasdaq's rule proposal does extend the time frames a company can 
continue to trade while out of compliance with certain continued 
listing standards, the changes are consistent with that of other 
national securities exchanges and do provide transparency to the 
delisting process. We also continue to expect Nasdaq, as they have 
represented, to monitor companies that are out of compliance and delist 
them promptly should there be public interest or other concerns that 
make continued trading unwarranted.
    For the reasons noted above, the Commission believes that the 
proposed rule change is reasonable and consistent with the Act.

V. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\74\ that the

[[Page 6077]]

proposed rule change (SR-NASDAQ-2009-077) be, and hereby is, approved.
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    \74\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Trading and Markets, 
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pursuant to delegated authority.\75\

    \75\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Deputy Secretary.
[FR Doc. 2010-2500 Filed 2-4-10; 8:45 am]
BILLING CODE 8011-01-P

