In January 2002, Nasdaq adopted a "pilot program" offering relief for noncompliance with minimum bid price requirements for continued listing on the Nasdaq SmallCap Market. The pilot program lengthens the compliance or "grace" periods for Nasdaq-listed issuers whose shares trade below $1 per share and face the possibility of delisting. In March 2003, Nasdaq extended the term of the pilot program, with some changes, until December 31, 2004. During the pilot program's extended term, Nasdaq will assess the effectiveness of the changes.
Background of Nasdaq Program
Minimum Bid Price Requirements
Nasdaq's quantitative listing criteria include minimum bid price requirements. The minimum bid price for National Market initial listing is $5. The minimum bid price for National Market continued listing is $1 under listing Standard 1 and, prior to March 2003, was $3 under Standard 2. The minimum bid price for Nasdaq SmallCap Market continued listing is $1. If a Nasdaq-listed issuer fails to comply with the applicable minimum bid price requirements for 30 consecutive business days, Nasdaq will notify the issuer of the deficiency. The issuer must then satisfy the minimum bid price for, generally, at least 10 consecutive business days during the applicable grace period. Failure to meet this standard within the grace period represents grounds for delisting the issuer's stock from the applicable Nasdaq market. Issuers are entitled to appeal delisting action. Prior to September 11, 2001, the grace period for both Nasdaq National Market and Nasdaq SmallCap Market issuers was 90 calendar days.
Original Pilot Program
Following September 11, Nasdaq placed a moratorium on enforcement of the minimum bid price requirements for continued listing. Immediately following termination of the moratorium and in recognition of continuing economic and market adversity, Nasdaq instituted a "pilot program" in January 2002 that lengthened minimum bid price grace periods for SmallCap Market issuers. Components of the original pilot program, which was scheduled to expire December 31, 2003, included:
- Extending the initial minimum bid price grace period from 90 to 180 calendar days;
- Providing a subsequent 180-day compliance period for issuers meeting "core" SmallCap Market initial listing criteria;
- Permitting a National Market issuer unable to meet minimum bid price requirements during the National Market 90-day grace period to transfer to the SmallCap Market and take advantage of the extended grace periods if the issuer met the SmallCap Market's continued listing standards, other than the minimum bid price requirement; and
- Permitting issuers who transferred from the National Market to the SmallCap Market to transfer back to the National Market without meeting initial inclusion criteria by complying with the $1 bid price requirement for 30 consecutive business days during the extended SmallCap grace period.
Revised Pilot Program and Related Rule Changes
Nasdaq's current rule changes extend the term of the pilot program to December 31, 2004, with the following modifications and additions
Effect on National Market Issuers
Reduction of Minimum Bid Price to $1. The rules reduce the National Market minimum bid price requirement for continued listing under Standard 2 from $3 to $1, the same amount as for continued listing under Standard 1. This change is permanent; it will not expire upon termination of the pilot program.
Extension of Minimum Bid Price Grace Period. The rules extend the minimum bid price grace period for National Market issuers from 90 to 180 days. A subsequent 180-day compliance period has been proposed for issuers that meet any of the following "core" National Market initial listing criteria:
- $30 million in equity;
- $75 million in market value of listed securities;
- $75 million in total assets and $75 million in revenue in the most recently completed fiscal year or two of the last three fiscal years; or
- $15 million in equity and $1 million in income from continuing operations before income taxes in the most recently completed fiscal year or two of the last three fiscal years.
The additional 180-day compliance period would not be available to an issuer that has publicly announced financial results indicating that none of these criteria are met.
Transfer to SmallCap Market. A National Market issuer that does not comply with the minimum bid price requirements at the end of a grace period, but otherwise meets all other SmallCap Market continued listing criteria, may transfer to the SmallCap Market subject to payment of the applicable entry fee. However, an issuer that has transitioned to the SmallCap Market may no longer transfer back to the National Market unless it meets all applicable National Market initial listing criteria. An issuer that transferred to the SmallCap Market under the original pilot program may return to the National Market under the terms of the original pilot program.
Effect on SmallCap Market Issuers
Extension of Minimum Bid Price Grace Period. If a SmallCap issuer does not comply with minimum bid price requirements before the end of the initial 180-day grace period, proposed rules provide for up to three additional 180-day compliance periods (for a total of up to 720 days) for issuers meeting any of the following "core" SmallCap initial listing criteria on the last day of the immediately preceding compliance period:
- $5 million in equity;
- $50 million in market value of listed securities; or
- $750,000 in net income from continuing operations in the most recently completed fiscal year or two of the last three fiscal years.
No extended compliance period would be available to an issuer that has publicly announced financial results indicating that none of the core listing criteria are met.
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