The NASDAQ Stock Market LLC (NASDAQ), the New York Stock Exchange LLC (NYSE) and NYSE Amex LLC (NYSE Amex) each submitted proposed rules for approval from the SEC that would make it more diffi cult for a reverse merger company6 to list its securities on their respective exchange. NASDAQ’s proposed rule, however, differs materially from the NYSE and NYSE AMEX proposed rules. As a result of these material differences, the SEC has instituted proceedings to determine whether the NASDAQ proposed rule should be disapproved.

The exchanges proposed rules generally provide that a reverse merger company would not be eligible for listing unless the combined entity had, immediately preceding the fi ling of the initial listing application, complied with the following:

  • Seasoning Period—With respect to the NYSE and NYSE Amex proposed rules, following the consummation of the reverse merger, the security must be traded for at least one year in the U.S. over-the-counter market, on another national securities exchange or on a regulated foreign exchange and, in the case of a domestic issuer, the issuer must have fi led with the SEC a Form 8-K including all of the information that would be required in a Form 10, including all required audited fi nancial statements, or, in the case of a foreign private issuer, fi led com parable information on Form 20-F. With respect to the NASDAQ proposed rule, the security must be traded for at least six months in the U.S. over-the-counter market, on another national securities exchange, or on a foreign exchange, following the fi ling with the SEC or other regulatory authority of all required information about the transaction, including audited fi nancial statements for the combined entity.
  • Minimum Stock Price—Under the NYSE proposed rule, the security must on both an absolute and an average basis for a sustained period maintain a minimum stock price of at least $4. Under the NYSE Amex proposed rule, the security must on both an absolute and an average basis maintain for a sustained period a minimum closing stock price equal to the stock price requirement applicable to the initial listing standard under which the reverse merger company was qualifying to list. Under the NASDAQ proposed rule, the security must have a bid price of $4 per share or higher on at least 30 of the most recent 60 trading days.
  • Timely fi le certain information—Under the NYSE and NYSE Amex proposed rules, all required reports since the consummation of the reverse merger, including the fi ling of at least one annual report containing audited fi nancial statements for a full fi scal year, must be fi led. Under the NASDAQ proposed rule, the timely fi ling in the case of a domestic issuer, of its most recent two required periodic fi nancial reports with the SEC or other regulatory authority (Forms 10-Q or 10-K) containing at least six months of information about the combined entity, or, in the case of a foreign private issuer, comparable information on Forms 6-K, 20-F or 40-F is required to be fi led.

Even if the foregoing criteria are met, an exchange could still decide not to list a reverse merger company’s securities. Under the pro posed rules, the exchanges will conduct risk-informed reviews of reverse merger companies seeking to list on the exchange using broad discretion on a case-by-case basis.

The NYSE and NYSE Amex proposed rules exempt from the proposed rules reverse merger companies that have conducted certain underwritten offerings.

The NYSE, NYSE Amex and NASDAQ proposed rules also exempt companies formed by reverse mergers with special purpose acquisition companies.

In deciding to institute the proceedings to determine whether the NASDAQ proposed rule should be disapproved, the SEC noted that the NASDAQ proposed rule should be considered together with the NYSE and NYSE Amex proposed rules “to assure that the exchanges develop and implement consistent and effective enhancements to their listing standards….”8 The SEC further noted three material differences between the NYSE and NYSE Amex proposed rules and the NASDAQ proposed rule changes. They are: (1) the NYSE and NYSE Amex proposed rules require a one year seasoning period while the NASDAQ proposed rule requires a six-month seasoning period; (2) the NYSE and NYSE Amex proposed rules provide for a more general requirement to maintain the minimum listing price for a “sustained period” rather than on at least a 30 of the 60 trading days prior to fi ling the listing approval as provided for in the NASDAQ proposed rule; and (3) the NYSE and NYSE Amex proposed rules provide for an exemption for reverse merger companies that list in connection with certain underwritten public offerings.