Nasdaq Listing Deficiencies And Delisting – Part 3

As 2022 and 2023 have continued to be extremely tough years for the capital markets many small cap companies find themselves failing to maintain the minimum continued listing requirements.  I’ve recently written about those continued listing requirements, see HERE, and Nasdaq’s proposed rule changes for reverse split notifications as companies struggle to maintain the $1.00 minimum bid price requirement, see HERE.

These blogs provide a perfect segue for a deep dive into the Nasdaq deficiency notice and delisting process.  In this first blog in the series, I provided an overview of deficiencies, deficiency notices, cure periods and compliance plans – see HERE.  In Part 2, I reviewed the hearing panel process – see HERE.  In this Part 3, I will review the appeals to the Nasdaq Listing and Hearing Review Council and delisting.  I note that the Nasdaq rules also contain administrative rules regarding the conduct of adjudicators and advisors and the adjudication process, which are beyond the scope of this blog series.

Appeal to the Nasdaq Listing and Hearing Review Council

A company may appeal a Panel Decision to the Listing Council and the Listing Council may also call for review a Panel Decision on its own initiative.  A written request for appeal must be submitted within 15 calendar days of the date of the Panel Decision.  An appeal fee of $15,000 must be included with the appeal request. An appeal does not stay the Panel Decision.  Upon receipt of a request for appeal, the Listing Council will provide deadlines for the company to provide written submissions.

When the Listing Council reviews a decision on its own initiative, it must do so within 45 calendar days of the Panel Decision.  Although the review does not operate as an automatic stay, the Listing Council has the power to stay the Panel Decision pending its review.

Scope of Listing Council Discretion

The Listing Council has the power to affirm, modify, or reverse the Panel Decision, issue a Public Reprimand Letter, or remand the matter to the Listing Qualifications Department or to the Hearings Panel for further consideration.  The Listing Council may also grant an exception to the continued listing requirements for a period not to exceed 360 days from the initial Staff Delisting Determination, or in the case of delinquent SEC reports, for a period not to exceed 360 days from the due date of the first late report, or for the failure to timely hold an annual meeting, from the deadline for such meeting.  Accordingly, any extra time periods granted by the Hearing Panel prior to Listing Council review will be deducted from this maximum period.   Moreover, the Listing Council can impose more additional or more stringent continued listing requirements where it deems warranted.

Similar to all Nasdaq review processes, the Listing Council will consider all facts and circumstances including whether the violation was inadvertent, materially adversely affected shareholders’ interests, has been cured, whether the company reasonably relied on an independent advisor and whether the company has demonstrated a pattern of violations.  The Listing Council will also consider any post Hearing Panel violations of listing standards.

Listing Council Review Process

For each matter, a subcommittee of at least two members of the Listing Council will review the written record and provide a summary to the other members.  In addition to the written record, the Listing Council can request additional written materials or hold an additional hearing.  Any hearing will be scheduled within 45 days of the appeal. A written Listing Council Decision will be issued after approval by at least a majority of the Listing Council.

A company may request, in writing, that the Listing Council reconsider a decision only upon the basis that a mistake of material fact existed at the time of the Listing Council Decision.  Such a request must be submitted within seven calendar days and will not stay the Decision unless the Listing Council specifically allows it.  If a reconsideration is granted, the modified decision must be rendered within 15 calendar days of the original decision.

If the Listing Council determines to delist the company, the securities will be immediately suspended, unless the Listing Council Decision specifies to the contrary.

Discretionary Review by Nasdaq Board

A Listing Council or Hearing Panel decision may be reviewed the Board of Directors of Nasdaq solely upon the request of one or more Board members not later than the next Nasdaq Board meeting that is 15 calendar days or more following the date of the Panel or Listing Council Decision.  This review is solely at the discretion of the Board and does not stay any Panel or Council decisions unless the Board specifies otherwise.

A Nasdaq Board review is substantially similar to a Listing Council review.  The Board will consider all facts and circumstances including failures not previously raised and conduct during the review process.  A company will be provided with notice of a Board review and have the opportunity to submit written materials.  A Board review is generally just based on written materials.

The Nasdaq Board may affirm, modify or reverse the Panel or Listing Council Decision and may remand the matter to the Listing Council, Hearings Panel, or staff of the Listing Qualifications Department with appropriate instructions.  The Board may also issue a Public Reprimand Letter where it determines that delisting is not warranted.

Delisting

Where a final determination has been made to delist a company’s securities, Nasdaq will immediately take action to do so including filing a Form 25 with the SEC.  A delisting determination is deemed final when all available review and appeal procedures have been utilized or the time for which expired.  Nasdaq publishes a list of delisted securities on its website.