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  • Neil R. E. Carr

SEC Approves Amendments to Nasdaq’s Initial Listing Standards Related to Liquidity

August 12, 2019

The SEC recently approved amendments to The Nasdaq Stock Market LLC’s (“Nasdaq”) initial listing standards on an accelerated basis. The amendments are intended to help enhance the liquidity of securities listed on the exchange by ensuring that listed issuers have sufficient public float, investor base, and trading interest likely to generate depth and liquidity. The revised standards apply to initial public offerings (IPOs), direct listings, and up-listings from the U.S. over-the-counter market (“OTC”). The rules became effective August 4, 2019.

No changes were adopted to Nasdaq’s continued listing requirements.

Prior to the amendments, in order to list securities on Nasdaq, a company was required to have a minimum number of publicly held shares, a minimum market value of publicly held shares, and a minimum number of round lot holders and could meet these requirements by including in each calculation restricted securities.

The amendments to Nasdaq’s initial listing standards now exclude “restricted securities” from the calculations of a company’s publicly held shares, the market value of publicly held shares, and number of round lot holders.

New Definitions of “Restricted Securities,” “Unrestricted Publicly Held Shares,” and “Unrestricted Securities”

To implement the new standards, Nasdaq added new definitions of “restricted securities,” “unrestricted publicly held shares,” and “unrestricted securities” and added a requirement that at least 50% of a company’s required round lot holders each hold unrestricted securities with a market value of at least $2,500.

The new definition of “restricted securities” includes any securities: subject to resale restrictions for any reason, including restricted securities acquired directly or indirectly from the issuer or any affiliate in unregistered offerings such as private placements or Regulation D offerings; acquired through an employee stock benefit plan as compensation for professional services; acquired in reliance upon Regulation S; subject to a lock-up agreement or similar contractual restriction; or considered “restricted securities” under Rule 144.

The new definition of “unrestricted securities” includes securities that are not “restricted securities.

Under prior initial listing standards, a company was required to have a minimum number of publicly held shares. The term “publicly held shares” excluded shares held directly or indirectly by an officer, director or any 10% beneficial owner and did not exclude securities subject to resale restrictions. Under the revised rules, restricted securities will not be included in the calculation of publicly available shares. To implement the change, Nasdaq has revised references to “publicly held shares” to the new term “unrestricted publicly held shares” which excludes from its definition newly defined “restricted securities.”

Nasdaq has modified the requirement related to the market value of publicly held shares so that the requirement is based solely on “unrestricted securities.” To implement the change Nasdaq has revised references in its rules to “market value of publicly held shares” to “market value of unrestricted publicly held shares.”

In connection with a direct listing on the exchange of a security that has not had sustained trading in a private placement market prior to listing, Nasdaq will determine that the issuer has satisfied the market value of unrestricted publicly held shares requirement if the company satisfies the applicable requirement and provides an independent third-party valuation evidencing a market value of publicly held shares of at least $250 m. (i.e., that the valuation may include restricted securities).

Nasdaq has amended its requirement related to the minimum number of round lot holders. Under Nasdaq’s prior standard, round lot holders could include holders of restricted securities (including beneficial owners). Under the revised listing requirement, the calculation of the number of round lot holder is based on holders of “unrestricted securities.”

With respect to American Depository Receipts (ADRs), Nasdaq will consider the unrestricted publicly held shares of the underlying security taking into account only those restrictions that prohibit the resale or trading of the underlying security on the foreign issuer’s home country market.

Newly Adopted Initial Listing Standards Applicable to Round Lot Holders and Certain Up-Listings

Nasdaq has added two new initial listing requirements. Under the new requirements, at least 50% of a company’s round lot holders must each hold unrestricted securities with a market value of at least $2,500. Also, for up-listings of securities previously traded OTC in the United States, the securities are required to have a minimum average daily trading volume (ADTV) over the 30 trading days prior to listing of at least 2,000 shares a day with trading occurring on at least 16 of those days. Securities listed in connection with a firm commitment underwritten public offering of at least $4 m. are exempt from this requirement.

For more information, please contact:

Neil R.E. Carr

Direct Dial: +1 202 459 4651

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