In late April, the United States Securities and Exchange Commission approved a proposal by NASDAQ to adopt an alternative to the $4 minimum bid price initial listing requirement for the NASDAQ Capital Market of either $2 or $3, if certain other listing requirements are met.
Under the proposed alternative, a security qualifies for listing on the NASDAQ Capital Market if, for at least five consecutive business days prior to approval, the security has a minimum closing price of at least $3 per share, if the issuer meets NASDAQ’s “Equity” or “Net Income” listing standards, or at least $2 per share, if the issuer meets NASDAQ’s “Market Value of Listed Securities” listing standard.
Further, for an issuer to qualify its securities under this alternative price requirement, the issuer must demonstrate that it has net tangible assets in excess of $2 million if the issuer has been in continuous operation for at least three years. If the issuer has been in continuous operation for less than three years, then the issuer must demonstrate net tangible assets in excess of $5 million. The issuer could also be listed under the alternative $2 or $3 price requirement if the issuer has average revenue of at least $6 million for each of the last three years.
NASDAQ’s stated purpose for its proposal is to compete with NYSE Amex for initial listings of companies with securities priced between $2 and $4. Currently, NYSE Amex is able to list companies priced between $2 and $4 without their securities being considered “penny stocks” because NYSE Amex benefits from the “grandfather” exclusion which does not apply to NASDAQ. As a result, in order to compete with NYSE Amex for listing securities priced between $2 and $4, and to avoid the compliance issues involved with being considered a “penny stock”, NASDAQ proposed to use the alternative penny stock exclusion which requires certain net tangible assets or average revenues. However, if the stocks fail to meets such net tangible assets or average revenue tests, then such stock would become “penny stocks”. To facilitate compliance by brokers with the penny stock rules, NASDAQ has committed to monitor and will publish on its website, and update daily, a list of the companies that initially listed under the alternative price requirement but no longer meet the net tangible assets or average revenue tests.
For further information on a listing on Amex or NASDAQ, please contact any member of Clark Wilson’s Corporate Finance & Securities Law Group.
