DealLawyers.com Blog

Yesterday, the SEC posted notice & immediate effectiveness of a Nasdaq proposal that increases SPAC initial listing requirements. Here’s the background from the notice:

Historically, Acquisition Companies chose to list on the Nasdaq Capital Market instead of the Nasdaq Global Market, in part, because it had lower fees and lower initial distribution requirements. More recently, certain Acquisition Companies have sought to list on the Nasdaq Global Market.

In particular, Nasdaq notes an SEC statement about accounting treatment by Acquisition Companies and subsequent and more recent accounting comments to Acquisition Companies have resulted in some Acquisition Companies adopting different accounting practices and, as a result, having insufficient equity to qualify for initial listing on the Nasdaq Capital Market. Based on Nasdaq’s experience listing Acquisition Companies on the Global and Capital Market tiers, Nasdaq proposes to modify Listing Rules 5405 and 5505 to increase the listing requirements for Acquisition Companies.

The notice also says that acquisition companies generally use the “Market Value” standards for those markets — that is the Market Value Standard for the Global Market (because the redeemable shares issued in the IPO means insufficient stockholders’ equity for the other standards) or the Market Value of Listed Securities Standard for the Capital Market (because they don’t meet the operating history and net income from continuing operations requirements of the other standards). With that in mind, Nasdaq is:

– Modifying Listing Rule 5405(b)(3)(A) to increase the minimum Market Value of Listed Securities that an Acquisition Company must have to at least $100 million for the Nasdaq Global Market; and

– Modifying the Market Value of Listed Securities Standard to exclude an Acquisition Company from being able to list under that rule, amending Listing Rule 5505(a)(3) to require that an Acquisition Company listing on the Capital Market must have a minimum of 400 public shareholders and adopting new requirements for Acquisition Companies listing on the Capital Market in Listing Rule 5505(b)(4), which will require:

• Market Value of Listed Securities of $75 million (current publicly traded Companies must meet this requirement and the $4 bid price requirement for 90 consecutive trading days prior to applying for listing if qualifying to list only under the Market Value Standard);
• Market Value of Unrestricted Publicly Held Shares of at least $20 million (for a Company listing in connection with an initial public offering, including through the issuance of American Depository Receipts, this requirement must be satisfied from the offering proceeds); and
• At least four registered and active Market Makers.

In support of these amendments, Nasdaq points out:

This increased Market Value of Listed Securities requirement for the listing of an Acquisition Company on the Global Market is the same as the current Market Value of Listed Securities requirement under the Alternative Initial Listing Requirements for Acquisition Companies listing pursuant to Listing Rule 5406 on the Nasdaq Global Market. This proposal is also consistent with the approach of the NYSE. However, unlike Acquisition Companies listing under Rule 5406 or the NYSE requirements, which can list with 300 shareholders, an Acquisition Company listing under Rule 5405(b)(3)(A) would continue to be required to have 400 shareholders [. . .]

These new requirements for listing of an Acquisition Company on the Capital Market are substantially similar to the current requirements for listing of an Acquisition Company on the Nasdaq Global Market. This proposal is also consistent with the requirements of NYSE American.

– Meredith Ervine