On September 30, 2016, Nasdaq submitted to the Securities and Exchange Commission a proposal to amend certain continued listing requirements for exchange-traded products in the Rule 5700 series and related amendments.2 For issuers of exchange traded notes listed on Nasdaq, most of the changes are minor. Some of the initial listing requirements will become applicable on a continuous basis. For example, the initial listing requirements of Nasdaq Rules 5710(a) and 5730(a) relating to minimum assets and stockholders' equity of the issuer will now apply on a continuous basis. Similarly, the issuer's minimum tangible net worth requirement of Nasdaq Rule 5710(e) will apply on a continuous basis. For large ETN issuers, meeting these requirements on a continuous basis should not be difficult.
However, the change from an initial to a continuous listing requirement with respect to a minimum outstanding aggregate market value/principal amount of at least $4 million may affect some ETN issuers. This $4 million amount includes ETNs held by affiliates of the issuer, such as a broker-dealer. ETN issuers have always had to satisfy this requirement at the time of issuance and initial listing, but were not subject to a delisting unless the publicly held aggregate market value/principal amount fell to less than $400,000 (see Nasdaq Rule 5710(K)(i)(B)(3)(a), NYSE Arca Rule 5.2(j)(6)(B)(I)(2)(c)(i) and BATS Rule 14.11(d)(2)(K)(i)(b)(3)(A)).3 ETN issuers of thinly-traded ETNs may fall below the $4 million outstanding threshold due to redemptions and market-making repurchases, but could avoid a delisting by issuing additional ETNs to an affiliate.
The other requirements that will now apply on a continuous basis, in addition to at the time of the initial listing, are that the ETN must be non-convertible debt of the issuer, negative leverage is limited to 3x, and if the ETN is linked to an index and that index is maintained by a broker-dealer, the broker-dealer must maintain a firewall around personnel maintaining the index.
A proposed change to Rule 5701 will require an executive officer of an issuer of any security listed under the Rule 5700 series to notify Nasdaq after the officer becomes aware of any non-compliance with the requirements of that series.