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COVID-19 Update: NYSE and Nasdaq Consider Impact of COVID-19

In light of the market-wide declines caused by the COVID-19 pandemic, on March 19, 2020, the New York Stock Exchange filed with the Securities and Exchange Commission a proposed suspension of its listing requirement that companies must maintain an average global market capitalization over a consecutive 30 trading-day period of at least $15 million (the “Market Cap Standard”).  On March 20, 2020, the SEC granted NYSE’s proposed suspension of the Market Cap Standard until June 30, 2020, and also designated the suspension operative upon NYSE’s filing, thereby waiving the standard 30-day operative delay of proposed rule changes.  Additionally, on March 26, 2020, the Nasdaq Stock Market announced that it will consider the effects of COVID-19 in its review of requests for financial viability exceptions to Nasdaq’s shareholder approval rules.

NYSE’s Market Capitalization Standard

NYSE Listed Company Manual Section 802.01B provides that NYSE will initiate suspension and delisting procedures if a company is determined to have average global market capitalization over a consecutive 30 trading-day period of less than $15,000,000.  Since the last week of February 2020, an “unusually high number”1 of NYSE-listed companies have faced immediate suspension and delisting for their failure to comply with the Market Cap Standard.  In response, NYSE proposed, and the SEC granted, the suspension of the Market Cap Standard until June 30, 2020, in order to provide temporary relief to those companies and their shareholders.

When a company is noncompliant with the Market Cap Standard, trading in such company’s securities is immediately suspended and the company is subject to delisting.  The suspension of the Market Cap Standard does not affect the status of a company that had been formally notified of its noncompliance prior to March 19, 2020.  During the suspension period, companies will not be notified of new events of noncompliance with the Market Cap Standard.  After the suspension period, new events of noncompliance with the Market Cap Standard will be determined based on a consecutive 30 trading-day period beginning on or after July 1, 2020.

NYSE has also indicated that it is exercising flexibility with respect to its “abnormally low share price” standard during this time of market volatility and is continuing to work with the SEC on other forms of relief.  However, for NYSE to suspend or waive any of its other continued listing standards, it would need to obtain formal SEC approval, as was done for the suspension of the Market Cap Standard.

Nasdaq’s Financial Viability Exception

On March 26, 2020, Nasdaq issued guidance to its listed companies regarding the impact of COVID-19.  While Nasdaq has not sought to suspend any of its listing rules, Nasdaq announced that it will consider the impact of disruptions caused by COVID-19 in its review of any pending or new requests for a financial viability exception to its shareholder approval rules.

Nasdaq Listing Rule 5365 sets forth the circumstances under which shareholder approval is required prior to an issuance of securities in connection with: (i) the acquisition of the stock or assets of another company; (ii) equity-based compensation of officers, directors, employees or consultants; (iii) a change of control; and (iv) transactions other than public offering.

Nasdaq Listing Rule 5365(f) provides an exception to the shareholder approval rules for companies in financial distress where the delay in securing shareholder approval would seriously jeopardize the financial viability of the company (the “Financial Viability Exception”).  Reliance by a company on the Financial Viability Exception must be expressly approved by such company’s audit committee or a comparable body of the board of directors comprised solely of independent, disinterested directors.

In order to request the Financial Viability Exception, a company must complete a Rule Interpretation Request form, attached with a letter addressing how a delay resulting from seeking shareholder approval would seriously jeopardize its financial viability and how the proposed transaction would benefit the company.  Nasdaq announced that, in its review of pending or new requests for the Financial Viability Exception, it will consider the effect of the disruptions caused by COVID-19.

1 Securities Exchange Act Release No. 34-88441 (March 20, 2020).

© Copyright 2020 Cadwalader, Wickersham & Taft LLP

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About this Author

William P. Mills, Partner, Cadwalader law firm
Partner

William Mills represents clients in a wide range of transactions, including mergers and acquisitions, divestitures, public and private securities offerings, shareholder activism, proxy contests, spin-offs, restructurings, leveraged buyouts, tender and exchange offers, and joint ventures. He regularly advises public companies and boards of directors on corporate governance, fiduciary duty and disclosure matters, as well as investment banks as financial advisers on M&A and other transactions.

Bill is co-chair of Cadwalader's Corporate Group and co-chair of the firm's Health Care...

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Gregory Patti Securities Lawyer Cadwalader Law Firm
Partner

Greg Patti represents clients in a wide variety of mergers and acquisitions, securities and corporate governance matters. Greg represents foreign and domestic entities in complex business transactions and counsels clients on negotiated acquisitions, divestitures and private equity transactions.

In addition to his transactional practice, Greg counsels clients on a broad range of business-related matters including securities law, directors’ duties and responsibilities and disclosure matters. Greg has represented public and private acquirors, targets and portfolio companies. He has advised clients on numerous significant matters, particularly in the life sciences and telecom industries.

Greg is a founder of the Shareholder Director Exchange (SDX™), a working group of leading independent directors and representatives from some of the largest and most influential long-term institutional investors. Advised by Cadwalader, the working group created the SDX Protocol as a template to assist U.S. public company boards and institutional investors in addressing corporate governance issues and facilitating direct engagement between institutional investors and boards of directors. 

Greg received his J.D. from Harvard Law School, an M. Phil. in International Relations from the University of Cambridge, and a B.A., magna cum laude, from Yale University.

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Braden McCurrach Corporate Attorney Cadwalader Law Firm
Partner

Braden McCurrach is a partner in Cadwalader’s Corporate Group.  His practice involves counseling clients in a broad range of complex transactional matters, including public and private mergers, acquisitions, divestitures, proxy contests, tender offers, spinoffs and joint ventures. Braden’s practice also includes the representation of investment banks in their capacity as financial advisors on M&A and other transactions.  In addition to his transactional experience, Braden advises clients in a wide array of governance, securities and other commercial matters, including directors’ duties...

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Chelsea Donenfeld, Lawyer, Cadwalader NY,Corporate Law, M&A, Securities law, Shareholder Activism and Defense
Associate

Chelsea Donenfeld is an associate in the Corporate Group of Cadwalader’s New York office. Her practice is concentrated in the area of corporate law, with an emphasis on mergers and acquisitions, securities law, shareholder activism and defense, corporate finance and corporate governance. Chelsea represents clients in a wide range of complex transactional matters, including public and private mergers and acquisitions and securities offerings.

Chelsea received her J.D. from the Benjamin N. Cardozo School of Law, where she was a Senior Articles Editor of the Cardozo Law Review ...

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