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NASDAQ Delisting Rules

17 Aug

NASDAQ (National Association of Securities Dealers Automated Quotations) is an American stock exchange. Listed investments must comply with all requirements or face being delisted. It only takes 10 days for the NASDAQ to delist an investment. The exchange has the flexibility to suspend enforcement of continued listing rules for its 3200 listed companies during abnormal market conditions.


History



  • The Securities Exchange Act of 1934 created the rules for delisting investments that trade on a national securities exchange.
    An influx of new NASDAQ listings in the 1990s lead to a record 749 delistings in 1999 as the bullish small cap market crashed pushing many closing prices below the $1 minimum. The NASDAQ delisting rules were updated in 2004 to streamline the process by allowing electronic filing of a delisting notification form via the EDGAR online reporting system. The exchange reexamined suspension and delisting rules in 2006 as companies struggled to comply with reporting and continued listing requirements. The most recent continued listing requirements can be found on the NASDAQ website.

  • Each of the NASDAQ’s three electronic trading markets (NASDAQ GLOBAL Market, NASDAQ Global Market Select, and NASDAQ Capital Markets), has its own requirements for initial and continued listing. Securities and Exchange Commission (SEC) marketplace rule 4330(a) gives the NASDAQ the authority to suspend or delist securities in instances where the exchange believes continued listing would be inappropriate, even though other listing criteria are met. This rule allows NASDAQ to control the quality and moral character of the exchange.
    Reasons NASDAQ may delist or suspend a security:
    • Not meeting continued listing criteria;
    • Bankruptcy;
    • Independent Auditors disclaimers on financial statements or failure to file required reports;
    • NASDAQ believes the action is necessary to protect investors;
    • A company is part of a reverse merger with a company not previously listed on the NASDAQ resulting in a non-listed company obtaining a NASDAQ listing.
    The NASDAQ temporarily disregards enforcement of listing rules due to market conditions. For example, the NASDAQ occasionally suspends enforcement of the $1 minimum value of publicly held shares when the market is very volatile.

  • The delisting process is very specific:
    1. NASDAQ notifies the company of pending suspension or delisting. The company may request a review hearing.
    2. NASDAQ requests additional information from the company, which must be accurate and delivered on time. For delinquency of filing required reports, the company may be granted up to 180 days to meet requirements.
    3. The NASDAQ Review Panel considers the circumstances surrounding the company and decides if the exchange will pursue suspension or delisting.
    4. NASDAQ files form 25 with the SEC to delist the security.
    5. Ten days after filing, the SEC delists the security and within 90 days withdraws its registration. The investment no longer trades on the exchange.
    Listed companies can voluntarily delist securities by submitting a form to the Securities and Exchange Commission to be removed from the exchange.

  • Investments can be suspended or delisted. Suspended securities stop trading on the stock exchange but may be relisted if given requirements are met. Delisted securities and those involved in a reverse merger must re-apply using the criteria for a new listing.

  • NASDAQ publishes notices of suspended or delisted securities to the public and on the NASDAQ.com website. The companies themselves often issue press releases when they receive notice from the stock exchange. The SEC also lists suspended and delisted companies on its website.

  • The rules for NASDAQ delisting are part of the exchange’s self-regulating policy, which ensures compliance with rules and regulations of both the exchange and the SEC.
    Delisting from national exchanges reduces investor access to shares. Investments may still be traded on the Over-the-Counter Bulletin Board (OTC) or Pink Sheets, which have fewer listing requirements and are therefore considered more risky.

Function



  • Each of the NASDAQ’s three electronic trading markets (NASDAQ GLOBAL Market, NASDAQ Global Market Select, and NASDAQ Capital Markets), has its own requirements for initial and continued listing. Securities and Exchange Commission (SEC) marketplace rule 4330(a) gives the NASDAQ the authority to suspend or delist securities in instances where the exchange believes continued listing would be inappropriate, even though other listing criteria are met. This rule allows NASDAQ to control the quality and moral character of the exchange.
    Reasons NASDAQ may delist or suspend a security:
    • Not meeting continued listing criteria;
    • Bankruptcy;
    • Independent Auditors disclaimers on financial statements or failure to file required reports;
    • NASDAQ believes the action is necessary to protect investors;
    • A company is part of a reverse merger with a company not previously listed on the NASDAQ resulting in a non-listed company obtaining a NASDAQ listing.
    The NASDAQ temporarily disregards enforcement of listing rules due to market conditions. For example, the NASDAQ occasionally suspends enforcement of the $1 minimum value of publicly held shares when the market is very volatile.

Considerations



  • The delisting process is very specific:
    1. NASDAQ notifies the company of pending suspension or delisting. The company may request a review hearing.
    2. NASDAQ requests additional information from the company, which must be accurate and delivered on time. For delinquency of filing required reports, the company may be granted up to 180 days to meet requirements.
    3. The NASDAQ Review Panel considers the circumstances surrounding the company and decides if the exchange will pursue suspension or delisting.
    4. NASDAQ files form 25 with the SEC to delist the security.
    5. Ten days after filing, the SEC delists the security and within 90 days withdraws its registration. The investment no longer trades on the exchange.
    Listed companies can voluntarily delist securities by submitting a form to the Securities and Exchange Commission to be removed from the exchange.

Types



  • Investments can be suspended or delisted. Suspended securities stop trading on the stock exchange but may be relisted if given requirements are met. Delisted securities and those involved in a reverse merger must re-apply using the criteria for a new listing.

Identification



  • NASDAQ publishes notices of suspended or delisted securities to the public and on the NASDAQ.com website. The companies themselves often issue press releases when they receive notice from the stock exchange. The SEC also lists suspended and delisted companies on its website.

Significance



  • The rules for NASDAQ delisting are part of the exchange’s self-regulating policy, which ensures compliance with rules and regulations of both the exchange and the SEC.
    Delisting from national exchanges reduces investor access to shares. Investments may still be traded on the Over-the-Counter Bulletin Board (OTC) or Pink Sheets, which have fewer listing requirements and are therefore considered more risky.

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Posted by on August 17, 2011 in Finance

 

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