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Nasdaq Provides Guidance for Listed Companies Amid COVID-19 Pandemic

Client Alert

Authors: Rachael M. Bushey, Jennifer L. Porter and Savir Punia

3/23/2020
Nasdaq Provides Guidance for Listed Companies Amid COVID-19 Pandemic

In light of the rapid pace of developments related to the coronavirus disease 2019 (COVID-19) pandemic, Nasdaq has issued a memorandum for Nasdaq-listed companies regarding the pandemic’s impact on the exchange and certain Nasdaq Listing Rules. This memorandum covers various developments and positions for Nasdaq issuers to reference for guidance in these uncertain times, including any specific waivers issued by Nasdaq of the Listing Rules in light of the pandemic. Nasdaq has committed to updating this memorandum as conditions continue to evolve.

Below is a summary of items included in the memorandum as of March 20, but Nasdaq-listed issuers should continue to periodically check for updates.

Periodic Reporting Obligations

On March 4, the U.S. Securities and Exchange Commission (SEC) issued Release No. 34-88318 (Providing Conditional Regulatory Relief and Assistance for Companies Affected by COVID-19), which grants companies, subject to certain conditions, an additional 45 days to file Exchange Act reports that would otherwise have been due between March 1 and April 30, 2020.

On March 6, as a result of the SEC’s action, Nasdaq issued Issuer Alert 2020-1 (Impact under Nasdaq Rules of SEC Relief to Companies Affected by the Coronavirus) providing that Nasdaq-listed companies impacted by the COVID-19 pandemic that otherwise satisfy the conditions in the SEC’s Order and are eligible for the 45-day extension to file will not be deemed to be deficient under Nasdaq Rule 5250(c) for failing to file Exchange Act reports by the existing deadlines and will not receive a letter of deficiency from Nasdaq.

Additionally, companies that are unable to file a periodic report by the applicable due date, but that are not eligible for the relief granted by the SEC Order, may submit a plan to Nasdaq Listing Qualifications with a description of how they intend to regain compliance, and Listing Qualifications’ staff may allow them up to six additional months to file.

Annual Meetings and Proxy Statements

Nasdaq’s Issuer Alert 2020-1 also addressed the impact of SEC Release No. 34-88318, which exempts companies from the requirement, including under Regulation 14A, to file or furnish proxy statements, annual reports and other solicitation materials to shareholders with a mailing address where common carrier service has been suspended due to the COVID-19 pandemic, provided the company has made a good faith effort to attempt to deliver these materials.

Nasdaq-listed companies in compliance with the above SEC Order will also satisfy Nasdaq Listing Rule 5250(d), which requires that a company solicit proxies and provide proxy statements for all meetings of shareholders.

Shareholder Approval Rules

In addition, Nasdaq announced that it will consider the impact of disruptions caused by COVID-19 in its review of any pending or new requests for a financial viability exception for Nasdaq shareholder approval rules. Typically, an exception to shareholder approval rules is only available for a company in financial distress when the delay in securing shareholder approval would significantly impair the financial viability of the company, which is generally a difficult standard to meet.

Reliance by the company on the financial viability exception must expressly be approved by the company’s audit committee, and the company must obtain Nasdaq’s approval to rely on the financial viability exception before proceeding with the transaction.

Other Nasdaq Listing Rules

Currently, Nasdaq has not suspended any Listing Rules in connection with the COVID-19 pandemic, but has announced that it will be closely monitoring the impact of the COVID-19 pandemic, including continued market volatility, on Nasdaq-listed companies.

Particularly, newly deficient companies with bid price, market value of listed securities, or market value of public float requirements have at least 180 days to regain compliance and may be eligible for additional time before delisting. These companies can submit a plan to Nasdaq Listing Qualifications describing how they intend to regain compliance. For example, Nasdaq may allow the company up to an additional 180-day grace period to come back into compliance with the $1.00 minimum bid price requirement, provided the company (1) has met the stockholder equity requirements of the applicable Nasdaq market at the time of expiration of the first 180-day grace period and (2) provides Nasdaq with written notice that it intends to regain compliance with the bid price requirement during the second 180-day compliance period, by effecting a reverse stock split if necessary.

Additionally, Nasdaq has encouraged Nasdaq-listed companies to contact Listing Qualifications for guidance on any other situations that may warrant an exception to the rules.

Hearing Panels

On March 20, Nasdaq also provided that independent Hearings Panel reviews are continuing to convene to consider matters, and companies can still request written or oral hearings. However, until at least April 16, 2020, there will be no in-person hearings and all other oral hearings will be conducted through video teleconferencing.

Nasdaq has stated that it recognizes and will consider the unique circumstances facing companies, but each company seeking an extension to regain compliance with the Listing Rules must still present to the Hearings Panel its plan to regain compliance based on the facts and circumstances of that company’s situation.

Nasdaq-listed companies are encouraged to contact hearing@nasdaq.com with any additional questions.

Other Items

The memo also addressed guidance for exchange-traded funds (ETFs) and aligned Nasdaq’s position with SEC Release No. 33817 (SEC Takes Targeted Action to Assist Funds and Advisers, Permits Virtual Board Meetings and Provides Conditional Relief from Certain Filing Procedures) regarding certain COVID-19 pandemic-related exemptions for ETFs under the Investment Company Act of 1940.

In addition, Nasdaq provided information to Nasdaq-listed companies regarding market volatility, including for marketwide circuit breakers, Limit Up/Limit Down rules for individual stocks, “short sales breakers” and general updates to North American Exchange Operations for initial public offerings (IPOs) and first trade operations. Nasdaq also noted that its Nasdaq MarketSite and Client Experience Center locations in New York City remain in operation with reduced staff. The locations remain open to facilitate Nasdaq opening and closing bell ceremonies, new listings and IPO first trade operations, and global broadcast operations. All client events have been canceled, however, and general public access to the exchange is restricted until further notice.

The Nasdaq Memorandum was originally issued on March 17, 2020 and subsequently amended on March 20. Nasdaq will continue to update this memorandum as it responds to the evolving COVID-19 pandemic. We will continue to monitor and provide updates to this release as new information becomes available.

The material in this publication was created as of the date set forth above and is based on laws, court decisions, administrative rulings and congressional materials that existed at that time, and should not be construed as legal advice or legal opinions on specific facts. The information in this publication is not intended to create, and the transmission and receipt of it does not constitute, a lawyer-client relationship.

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