In November 2023, the SEC approved new Nasdaq listing standards related to notification and disclosure of reverse stock splits. (See this PubCo post.) The rules were designed to “enhance the ability for market participants to accurately process these events, and thereby maintain fair and orderly markets.” Failure to comply could result in a trading halt. Nasdaq is now proposing a change to one of those rules to conform the timing of the notification to a FINRA requirement. Although the rule became effective immediately, to allow sufficient time for market participants to adjust to the new time frame, the proposed rule change will become operative on January 30, 2025.
Happy Thanksgiving!!
While the 2023 rules involved several changes, one of the new rules was Rule 5250(e)(7). Under Rule 5250(e)(7), companies conducting reverse splits must notify Nasdaq by submitting a completed Company Event Notification Form no later than 12:00 p.m. ET five business days prior to the proposed market effective date. The Form must include information such as the split ratio, the effective date of the split, new CUSIP number, and the dates of board approval, shareholder approval and DTC eligibility. The Form submitted must also include a draft of the public disclosure required by Rule 5250(b)(4) (public notice is required no later than 12:00 p.m. ET at least two business days prior to the proposed market effective date).
Rule 10b-17(a)(2) and (b) of the Exchange Act require companies to notify FINRA (formerly, the NASD) “no later than 10 calendar days prior to the date of record to participate in a stock split or reverse stock split, unless the impacted security is traded on a national securities exchange with a substantially comparable requirement to those set forth in Rule 10b-17(b)(1).” [Emphasis added.]
It turns out, however, that Nasdaq’s current rule may not be considered “substantially comparable” to that requirement in Rule 10b-17 for a 10-calendar-day prior notice. As a result, Nasdaq is proposing to amend the deadline for a company to notify Nasdaq of a reverse stock split from five business days to “10 calendar days prior to the anticipated market effective date of the reverse stock split to ensure that Rule 5250(e)(7) and IM-5250-3 are substantially comparable to Rule 10b-17 and, therefore, that companies are compliant with Rule 10b-17 when they give notice under those rules.” Nasdaq “still believes that this timeframe provides sufficient notice to the public about reverse stock splits.” Nasdaq provides the following illustration:
“For example, if a company desires to effect a reverse stock split with a market effective date of Monday, September 23, the company would have to provide Nasdaq with a draft of the disclosure required by proposed Rule 5250(b)(4) and a complete Company Event Notification Form by 12:00 p.m. ET on Friday, September 13, and provide the public disclosure by 12:00 p.m. ET by Thursday, September 19. Note that this example presumes that there are no holidays during these dates. If a company withdraws and resubmits a Company Event Notification Form, the 10 calendar day period would be measured from the date the company re-submitted the form (rather than the date of the first submission).”
Note that Nasdaq is not amending the two-business-day requirement to provide public disclosure. Nasdaq is also submitting an updated Company Event Notification Form, which makes conforming changes to reflect the new submission deadline.
