Cullinan Metals Corp V.CMT

RE:Nasdaq Listing Requirements

[HurricaneRick]

NASDAQ Rule IM-5505 - Initial Listing for Securities Below $4

(a) Penny Stock Provisions. Rule 5505(a)(1)(B) provides an alternative initial listing requirement for certain companies with a minimum bid price below $4. A company that qualifies for initial listing only under this alternative could become a "penny stock" if it later fails the net tangible assets and revenue tests after listing and does not satisfy any of the other exclusions from being a penny stock contained in Rule 3a51-1 under the Act. In order to assist brokers' and dealers' compliance with the requirements of the Penny Stock Rules, Nasdaq will monitor companies listed under the alternative requirement and publish on its website on a daily basis a list of any company that initially listed under the alternative requirement, which no longer satisfies the net tangible assets or revenue test contained in Rule 5505(a)(1)(B), and which does not satisfy any of the other exclusions from being a penny stock contained in Rule 3a51-1 under the Act. If a company initially lists with a bid price below $4 under the alternative requirement contained in Rule 5505(a)(1)(B), but subsequently achieves a $4 closing price for at least five consecutive business days and, at the same time, satisfies all other initial listing criteria, it will no longer be considered as having listed under the alternative requirement and Nasdaq will notify the Company that it has qualified for listing under the price requirement contained in Rule 5505(a)(1)(A).

Brokers and dealers are reminded that the list published by Nasdaq is only an aid and that the Penny Stock Rules impose specific obligations on brokers and dealers with respect to transactions in penny stocks.

(b) Determination of closing price. For purposes of Rule 5505(a)(1)(B) and this IM- 5505, the closing price will be the Nasdaq Official Closing Price, if there is one, or the consolidated closing price distributed under the applicable National Market System Plan if there is no Nasdaq Official Closing Price. Nasdaq will require that a security maintain the necessary closing price for five consecutive business days, but may extend this five day period, based on any fact or circumstance, including the margin of compliance, the trading volume, the Market Maker montage, the trend of the security's price, or information or concerns raised by other regulators concerning the trading of the security.

Adopted April 18, 2012 (SR-NASDAQ-2012-002).


 

New Nasdaq $2 / $3 Initial Price Listing Standards

By DLA Piper on  April 24, 2012 Posted in IPOs and M&A, News and Recent Events

CONTRIBUTED BY
Megan Muir

 

As a quick follow up on this topic from a few months ago (prior post can be read here), the SEC has approved alternatives to Nasdaq’s historical $4 minimum bid price listing standard.  Under the new alternative listing standards, a security may qualify for listing on the Nasdaq Capital Market if:

$3/share price — for at least five consecutive business days prior to approval, the security has a minimum closing price of at least $3 per share and the issuer has either:

• Equity Standard:  (A) stockholders’ equity of at least $5M; (B) market value of publicly held shares of at least $15M; and (C) a two year operating history; or
• Net Income Standard:  (A) net income from continuing operations of $750,000 in the most recently completed fiscal year or in two of the three most recently completed fiscal years; (B) stockholders’ equity of at least $4M; and (C) market value of publicly held shares of at least $5 million; or

$2/share price — for at least five consecutive business days prior to approval, the security has a minimum closing price of at least $2 per share and the issuer has (A) market value of listed securities of at least $50M; (B) stockholders’ equity of at least $4M; and (C) market value of publicly held shares of at least $15M.

In addition, the issuer must also demonstrate that it has:

• Net tangible assets in excess of $2M if it has been in continuous operation for at least three years;
• Net tangible assets in excess of $5M if it has been in continuous operation for less than three years; or
• Average revenue of at least $6M for the last three years.

Nasdaq-listed securities have historically not been regulated as “penny stocks” (which subject broker-dealers trading in them to additional disclosure and other requirements) because of the exception for securities registered on a national securities exchange that, among other things, required a minimum bid price of $4 per share at initial listing.  NYSE Amex benefits from a “grandfather” exception that permits lower initial prices.  With Nasdaq’s new alternative listing standards, it can compete with the NYSE Amex for listings in the $2-3 range.  However, it is possible that companies listing under these lower standards may become “penny stocks.”

To address this, new Nasdaq interpretive guidance (IM-5505) provides that an issuer listing under the alternative price requirements may become a “penny stock” if the issuer fails the net tangible assets and revenue tests after listing and does not satisfy any of the other exclusions from being a penny stock contained in Rule 3a51-1 under the Exchange Act.  Nasdaq will monitor issuers whose securities are listed under the alternative price requirement, and publish on its website on a daily basis a list of those companies that no longer satisfy the net tangible assets or revenue tests, nor any other exclusion from being a penny stock.  If a security subsequently has a $4 closing price for at least five consecutive business days, it can be reevaluated under the regular Nasdaq qualitative and quantitative initial listing standards and deemed listed under these standards.  Nasdaq has represented that its review of the issuer’s compliance at this stage will be “robust” and “wholesale.”  In addition, Nasdaq has represented that enhanced surveillance procedures will be used to monitor anomalous trading in securities listed under these alternatives.

With Nasdaq now competing with NYSE Amex for listings in the $2-3 range (and the relaxed registration requirements under the IPO “on-ramp” provisions of the JOBS Act), mid-sized IPO candidates have additional options for accessing the capital markets.