Aiming to help companies that trade their securities at depressed prices on its exchange, the Nasdaq Stock Market Inc. is working to relax its bid requirements.
On Jan. 30, New York-based Nasdaq said it planned to extend a pilot program governing minimum bid price rules - in effect providing companies added time to address bid price deficiencies that may be attributable to the continuing economic downturn and the related decline in the broad market averages. Many of the market's continued listing requirements are tied to market factors such as bid price, market value of public float and market capitalization.
"This is a prudent, measured response to these uncertain and unprecedented economic times," Melissa Fox, the director of Nasdaq's corporate communications, told BioWorld Today. "We believe this is a good move for companies and investors in that the U.S. market is suffering through its worst economic downturn since World War II."
The proposal, which Fox said would bring Nasdaq's grace periods in line with other U.S. markets, remains subject to Securities and Exchange Commission approval. She added that Nasdaq remains in an ongoing dialogue with the SEC.
Nasdaq, which lists more than 3,700 companies, said it trades more shares per day than any other U.S. market.
For National Market companies, the proposal would extend the grace period from 90 days to 180 to maintain a $3 bid price required for continued listing, and provide an additional 180-day grace period for those National Market issuers able to demonstrate compliance with the core National Market initial listing criteria.
Such criteria vary for three different standards. All include requirements for at least 1.1 million publicly traded shares and a minimum $5 bid price at the outset. But market caps vary for the three standards - $8 million, $18 million and $20 million. The first two standards also require stockholders' equity of $15 million and $30 million, respectively.
For SmallCap companies, the proposed rule would keep the initial 180-day grace period to maintain a $1 bid price required for continued listing, but extend the minimum bid price grace period for those that comply with the core initial listing criteria from 180 to up to 540 days - about 18 months. Compliance with the standard would be verified every 180 days.
SmallCap companies must meet one of the following core initial listing criteria: net income of at least $750,000 in either a company's latest fiscal year or in two of its last three fiscal years, stockholders' equity of $5 million or a market capitalization of at least $50 million.
The proposal also seeks to extend the pilot program expiration from Dec. 31 of this year for 12 more months.
"This is a good move for investors because it would enable them to continue to trade in a regulated liquid and transparent market," Fox said. "This will provide them more time to make investment decisions. They won't feel compelled to sell out of fear, which would only accelerate a price decline."
According to last week's edition of BioWorld Financial Watch, which tracks 270 companies in the sector that trade on Nasdaq, the American Stock Exchange and the New York Stock Exchange, shares of 55 companies traded below $1. An additional 73 companies' shares traded between $1 and $3.
When companies fall out of compliance in the National Market, they are considered for SmallCap Market listing provided they demonstrate an ability to meet such criteria. But an individual company must file for SmallCap listing and pay its initial listing fees.
Companies that are completely delisted by Nasdaq often are eligible for quotation on the Over-the-Counter Bulletin Board, an electronic quotation service operated by the National Association of Securities Dealers, assuming they are up to date with their periodic reports. If not, they may be listed on the Pink Sheets, a quotation service that is not operated by NASD and does not require that companies register with the SEC or remain current with their periodic reports.
But there is precedent in Nasdaq's recent proposal. Almost immediately after trading resumed following the Sept. 11 attacks in 2001, the market took similar actions to keep its companies from falling out of compliance. On Sept. 27, six business days after the markets reopened, Nasdaq said it would implement an across-the-board moratorium on the minimum bid and public float requirements for continued listing. The proposal was to suspend the requirements until Jan. 2, 2002.