FR 2024-30898

The document under review, published by The Nasdaq Stock Market LLC, outlines a proposed rule change related to initial listing liquidity requirements. It focuses on how companies undergoing initial public offerings (IPOs) must meet certain market value criteria. Specifically, it mandates that the Market Value of Unrestricted Publicly Held Shares (MVUPHS) should be calculated solely based on the proceeds obtained from the IPO, excluding any resale shares that were previously issued and registered for resale. This proposal aims to ensure sufficient liquidity when a company's shares are listed and to minimize stock price volatility on the listing date.

General Summary

The proposal seeks to revise the Nasdaq Listing Rules to enhance the liquidity standard that companies are required to meet for listing. The proposed change concerns companies listing during an IPO or moving from the over-the-counter (OTC) market to Nasdaq. Presently, resale shares count towards the liquidity requirements, but the proposed rules would exclude them, focusing only on shares sold during the public offering. This is on the basis that shares sold via the public offering contribute more robustly to market liquidity and thereby reduce price volatility when a company first lists its shares.

Significant Issues or Concerns

Technical Language: The document extensively uses technical terms such as MVUPHS and ADV Requirement without simple explanations, thereby complicating understanding for readers unfamiliar with financial jargon.

Lack of Context: References to specific Nasdaq Listing Rules such as 5405 and 5505 require the readers to seek additional sources for complete comprehension of the rule contents and their implications.

Unsubstantiated Claims: The document posits that resale shares lead to higher trading volatility and less liquidity without detailed evidence or supportive data, potentially reducing the transparency and perceived justification of the proposed changes.

Limited Stakeholder Engagement: The notice highlights no public comments received, which might indicate limited consultation with stakeholders beyond Nasdaq, raising questions about broader industry opinion and potential oversight of diverse perspectives.

Broad Public Impact

For a general audience, this change could signify increased stability and predictability in stock prices of newly public companies. This might make the stock market appear more reliable and less susceptible to sudden price swings, potentially increasing investor confidence. By requiring the liquidity standards to be met solely from IPO proceeds, the rule aims to ensure that the company's shares have a strong market presence immediately upon listing.

Impact on Specific Stakeholders

The proposed changes primarily target companies preparing for an IPO or those transitioning from the OTC market to the Nasdaq. These companies could face more stringent requirements to meet initial public listing standards, which might pose challenges, especially for smaller firms with limited capital-raising capabilities. However, the proposal suggests that these changes are crucial for bolstering market confidence and enhancing the investor protection framework, which could be advantageous in the long term.

While the proposal could standardize how liquidity is judged during IPOs, it may increase the financial burden on some companies, particularly those with significant resale shares intending to list. This might necessitate companies devising new strategies to meet the liquidity requirements exclusively through IPO proceeds.

In summary, the proposed rule change by Nasdaq introduces important considerations for ensuring market stability and investor protection through enhanced liquidity requirements. However, the lack of detailed evidence for the necessity and efficacy of these changes and apparent minimal public consultation pose concerns that warrant attention and further discussion.

In the Federal Register document regarding proposed changes by The Nasdaq Stock Market LLC, several financial references and allocations are highlighted, primarily concerning the requirements for initial public offerings and listings on the Nasdaq exchange. The financial references mainly pertain to the Market Value of Unrestricted Publicly Held Shares (MVUPHS) standards that companies must meet to be listed on Nasdaq’s various markets.

Minimum MVUPHS Requirements

Nasdaq has specified minimum MVUPHS requirements that companies must meet to qualify for listing:

• For the Nasdaq Global Market, a company must possess a minimum MVUPHS of $8 million under the Income Standard, $18 million under the Equity Standard, and $20 million under either the Market Value or Total Assets/Total Revenue Standards.
• For the Nasdaq Capital Market, a company must have a minimum MVUPHS of $5 million under the Net Income Standard, and $15 million under either the Equity or Market Value of Listed Securities Standards.

These financial thresholds are crucial as they determine a company’s eligibility for listing on Nasdaq, ensuring that only companies with sufficient liquidity and public interest are listed.

Changes to Listing Requirements for Public Offerings

Nasdaq proposes changes affecting companies conducting initial public offerings (IPOs) or those uplisting from the over-the-counter (OTC) market. The proposed rule change stipulates that companies must meet the minimum MVUPHS solely from the proceeds of their public offerings. This would exclude previously issued shares registered for resale, known as Resale Shares, from counting towards the MVUPHS. The rule change aims to improve market stability by ensuring that the liquidity reflects only the new shares sold in the offering, potentially reducing trading volatility observed with Resale Shares.

Adjustment in Public Offering Requirements for OTC Market Companies

Furthermore, for companies trading in the OTC market and aiming to list on Nasdaq, the requirements are adjusted:

• These companies must either meet a daily trading volume benchmark or list with a firm commitment underwritten public offering initially valued at a minimum of $4 million. This threshold is proposed to increase to $5 million for Nasdaq Capital Market applicants and $8 million for Nasdaq Global Market applicants.

This aligns the offering size with the minimum MVUPHS, ensuring consistency and adequate liquidity.

Financial Implications and Identified Issues

The outlined financial references align closely with some of the document’s identified issues. First, the technical nature and specific financial thresholds can be challenging for a general audience, as detailed economic impacts or justifications for these monetary requirements are not fully elaborated in the document. For instance, the rationale behind requiring proceeds solely from the public offering to meet the MVUPHS isn’t supported by detailed data, which might make the change seem arbitrary to some stakeholders.

Additionally, the potential economic impact on smaller companies seeking to uplist from the OTC market isn't extensively discussed. These smaller firms might find it challenging to meet the increased financial thresholds, potentially affecting their ability to list on Nasdaq. This consideration is vital as it touches upon the broader implications of Nasdaq’s intended changes on market accessibility and competition.

Overall, the financial allocations and the changes they underpin underscore Nasdaq's approach to regulating market entry criteria, aimed at promoting stability and ensuring adequate liquidity for listed companies. However, greater transparency and analysis regarding the broader economic implications would provide a more comprehensive understanding of the proposed rule changes.