On April 16, the Nasdaq Stock Market issued Nasdaq Issuer Alert 2020-2, announcing a proposal for temporary relief for companies listed on the exchange with respect to stock prices and market values that have fallen below required minimums due to the impact of the novel coronavirus 2019 (COVID-19) pandemic.

Nasdaq has filed this proposal with the U.S. Securities and Exchange Commission (SEC) pursuant to the Securities Exchange Act Rule 19b-4(f)(6) and requested that the SEC waive the 30-day operative delay period contained in Exchange Act Rule 19b-4(f)(6)(iii).

Under the proposal, Nasdaq will permit a longer period of time for companies to regain compliance with the bid price (Nasdaq Listing Rule 555(a)(2)) and market value of publicly held shares (Nasdaq Listing Rule 5550(a)(5)) continued listing requirements by tolling the compliance periods through and including June 30, 2020.

Nasdaq stated in its application to the SEC that, as of April 13, 2020, there were 154 securities on its exchange that were already deficient with the $1 bid price requirement, that an additional 262 securities had closing bid prices below $1 for less than 30 days, and another 117 securities had closing bid prices between $1 and $1.50. By contrast, Nasdaq stated that, on March 1, 2019, there were 119 securities that were deficient with the bid price requirement.

Similarly, Nasdaq said in its application to the SEC that there were seven securities that were deficient with the applicable market value of publicly held shares requirement, with another 22 securities below the applicable requirement for less than 30 days as of April 13, 2020. Only two securities were cited for noncompliance with this requirement during the period from January 1 through April 13, 2019.

Nasdaq has stated that, through the tolling period, it will continue to monitor these requirements and companies will continue to be notified about new instances of noncompliance with the price-based requirements in accordance with existing Nasdaq rules. Companies that are notified about noncompliance will still be required under Nasdaq rules to make a public announcement disclosing receipt of the notification by filing a Form 8-K, where required by SEC rules, or by issuing a press release. Nasdaq will also continue to monitor securities to determine if they regain compliance with the bid price and market value requirements during the tolling period.

Starting on July 1, 2020, companies will receive the balance of any pending compliance period in effect at the start of the tolling period to come back into compliance with the applicable requirements. Companies that are newly identified as noncompliant during the tolling period will have 180 days to regain compliance, beginning on July 1, 2020.

For example, if a company is 120 days into its first 180-day compliance period for a bid price deficiency when the tolling period starts and the company does not regain compliance before June 30, 2020, the company will have an additional 60 days, starting on July 1, 2020, to regain compliance. The company may also be eligible for a second 180-day compliance period if it satisfies the conditions for eligibility at the conclusion of the first compliance period.

For companies that were in the hearings process, they will return to that process at the same stage they were in when the tolling period began. If the company received a temporary exception from the Hearings Panel before the tolling began, the company will receive the balance of the exception period beginning on July 1, 2020. However, a company that was in the hearings process will nonetheless be delisted and not get the benefit of the tolling period if the company had an oral or written hearing before a Hearings Panel and that Hearings Panel had reached a determination to delist, even if the Hearings Panel has not issued the written decision required by Nasdaq Listing Rule 5815(d)(1) and Rule 5840(c) prior to the proposed rule change taking effect.

Nasdaq stated in its application to the SEC that it believes this temporary tolling of the compliance periods is appropriate because it is difficult for companies that are already noncompliant with these requirement to take action to regain compliance. Nasdaq noted, in particular, that large daily market moves as a result of the COVID-19 pandemic make it difficult for a company to predict what ratio may be required for a reverse stock split that will enable the company to achieve and maintain compliance with the bid price requirement. Similarly, Nasdaq believes that these requirements could be harmful to existing shareholders if a company were to sell securities at an artificially low price solely to regain compliance with the market value of publicly held shares requirement and that the need to develop and implement actions to address potential or actual noncompliance will draw management and board attention away from the more immediate needs of their employees and customers, as well as the communities in which these companies operate.

Intercontinental Exchange Inc.’s New York Stock Exchange has also asked the SEC to allow it to ease its ongoing listing requirement until the end of June.

A full copy of the rule can be found at http://img.n.nasdaq.com/Web/GIS/%7B1b62f703-d510-4903-aab1-fd7993d5b2de%7D_SR-NASDAQ-2020-021.pdf.

What This Means for Listed Companies, if Implemented

• Companies that are currently subject to the 180-day compliance period for a deficient bid price or market value will have the balance of the compliance period tolled until June 30, 2020, with the balance of the compliance period restarting on July 1, 2020.

• Companies that receive notices of deficiencies from Nasdaq during the tolling period will still remain subject to the Nasdaq rules that require them to make a public announcement disclosing receipt of the notification by filing a Form 8-K, where required by SEC rules, or by issuing a press release and will have 180 days from July 1, 2020 to regain compliance (if compliance is not achieved during the tolling period ending on June 30, 2020).