& Securities

In light of U.S. and global equities markets declines resulting from the continued spread of the coronavirus (COVID-19), the New York Stock Exchange (NYSE) has temporarily suspended the application of one of its continued listing rules, which requires that listed companies maintain an average global market capitalization over a consecutive 30 trading-day period of at least $15 million (Market Capitalization Standard). In addition, the Nasdaq Stock Market (Nasdaq) issued an information memorandum on March 23, 2020, available here, indicating that Nasdaq is closely monitoring the impact of COVID-19 and the resultant market volatility of the securities of its listed companies, and providing Nasdaq-listed companies with guidance in a number of areas.

New York Stock Exchange. NYSE Listed Company Manual Section 802.01B provides that NYSE will initiate immediate suspension and delisting procedures if a company is determined to have an average global market capitalization over a consecutive 30 trading-day period of less than $15 million. In its rule suspension proposal to the Securities and Exchange Commission (SEC) available here, the NYSE cited that an unusually high number of listed companies “are in imminent danger of immediate suspension and delisting.” The SEC approved the suspension of the Market Capitalization Standard, effective March 19, 2020 through June 30, 2020. Following the cessation of the temporary suspension, any new events of noncompliance with the Market Capitalization Standard will be determined based on a consecutive 30 trading-day period commencing on or after July 1, 2020.

NYSE-listed companies will continue to be subject to delisting for failure to comply with other listing requirements such as the minimum price condition under Section 802.01C of the Listed Company Manual, which states that a listed company will be considered to be out of compliance with the continued listing standards if the average closing price of its security is less than $1.00 over a consecutive 30 trading-day period. Companies receiving notice of noncompliance with Section 802.01C are eligible to defer a delisting through a six-month cure process set forth in the rule, which often involves effectuating a reverse stock-split.

The Nasdaq Stock Market. While Nasdaq has not similarly suspended any of its continued listing standards amidst the COVID-19 outbreak, in its information memorandum, Nasdaq provides companies with guidance in a number of areas:

• Nasdaq will consider the impact of COVID-19 in its review of requests for financial viability exceptions to Rule 5635, which requires shareholder approval for the issuance of securities in certain enumerated circumstances. Rule 5635(f) provides an exception for companies in financial distress where the delay in securing stockholder approval would “seriously jeopardize the financial viability” of the company. To rely on the financial viability exception, the company’s audit committee (or comparable body) must approve reliance on the exception and the company must obtain Nasdaq’s approval. Although generally a difficult standard to meet, Nasdaq will now consider the impact of disruptions caused by COVID-19 in its review of pending or new requests for a financial viability exception.

• Nasdaq-listed companies impacted by the COVID-19 outbreak that satisfy the conditions of the SEC orders of March 5 and March 25, 2020 granting qualifying companies a 45-day extension to file certain reports such as Form 10-Ks and Form 10-Qs due between March 1 and July 1, 2020 will not be deemed deficient under Nasdaq Rule 5250(c) for failing to file such reports by the existing deadlines and will not receive a deficiency letter from Nasdaq. See our prior Alerts available here and here for a discussion of the SEC’s March 5th and March 25th orders (the SEC Orders).

• Nasdaq-listed companies that satisfy the conditions of the SEC Orders providing relief from furnishing proxy and information statements to shareholders with a mailing address where common carrier service has been suspended due to COVID-19, will be deemed to have satisfied (i) Nasdaq Listing Rule 5250(d), which requires companies to make available their annual, quarterly and interim reports to shareholders, and (ii) Nasdaq Rule 5620(b), which requires companies to solicit proxies and provide proxy statements for all shareholder meetings.

• Nasdaq states that if “virtual” meetings are permitted by state law and a company’s governing documents, a listed company wishing to hold a virtual meeting is required to notify shareholders within a timely manner with clear directions on how to access the meeting. See our prior Alerts available here, here and here for annual meeting guidance amidst COVID-19. Nasdaq also provides frequently asked questions on virtual meetings available here.

Nasdaq encourages listed companies to contact it for guidance on any other situations that may warrant an exception to the rules.