On February 13, 2018, Nasdaq proposed amendments to Listing Rule 5635(d), which currently requires shareholder approval when a company issues common stock (or securities convertible into or exercisable for common stock) for "less than the greater of book or market value" in a transaction other than a public offering involving the sale of 20% or more of the common stock outstanding or voting power prior to the issuance.

The Nasdaq proposal would –

(i) change the definition of market value for purposes of the shareholder approval rule, and

(ii) eliminate the requirement for shareholder approval of issuances at a price less than book value but greater than market value.

The definition of market value for purposes of the shareholder approval rule would be revised to "the lower of: (i) the closing price (as reflected on Nasdaq.com); or (ii) the average closing price of the common stock (as reflected on Nasdaq.com) for the five trading days immediately preceding the signing of the binding agreement."

Nasdaq reasoned that "book value is not an appropriate measure of whether a transaction is dilutive or should otherwise require shareholder approval." Nasdaq further reasoned that the definition of "market value," currently defined under Listing Rule 5005 as the closing bid price, "may not be transparent to companies and investors and does not always reflect an actual price at which a security has traded." Nasdaq indicated that it "believes that the closing price reported on Nasdaq.com is a better reflection of the market price of a security than the closing bid price." Nasdaq also recognized that, in certain circumstances, a five-day average could be a fairer method of determining market value, because the closing price could be subject to unanticipated and inequitable results based on market fluctuations. Accordingly, Nasdaq settled on defining market value as "the lower of the closing price at the time of the transaction or the five-day average of the closing price as the measure of market value for purposes of the shareholder approval rules."

To improve the readability of the rule, Nasdaq proposed to define this new concept as the "Minimum Price" and to eliminate reference to book value and market value from Listing Rule 5635(d).

A complete copy of Nasdaq's proposed amendment to Listing rule 5635(d) can be found here.