NASDAQ Listing Requirements and the Seasoning Rule
NASDAQ Listing Requirements and the Seasoning Rule- The seasoning rules were adopted in late 2011 by multiple national exchanges, including NASDAQ in response to a request from the SEC for the exchanges to limit the ability of companies to uplist following the completion of a reverse merger with a US public shell. The SEC request came as a result of a slew of reverse mergers from China where the representations related to the financial condition of the foreign companies turned out to be fraudulent.
The seasoning rules prohibit a company that has completed a reverse merger with a public shell from applying to list until the combined entity had traded in the U.S. over-the-counter market, on another national securities exchange, or on a regulated foreign exchange, for at least one year following the filing of all required information about the reverse merger transaction, including audited financial statements. The rules require that the new reverse merger company has filed all of its required reports for the one-year period, including at least one annual report on Form 10-K.
The seasoning rule requires that the reverse merger company maintain a closing stock price equal to the stock price requirement applicable to the initial listing standard for a sustained period of time, but in no event for less than 30 of the most recent 60 trading days prior to the filing of the initial listing application.
The rule includes an exception for companies that complete a firm commitment underwritten offering resulting in net proceeds to the company of at least $40 million.
In addition to the specific additional listing requirements contained in the new rule, the Exchange may “in its discretion impose more stringent requirements for companies applying after a reverse merger if it believes it is warranted based on, among other things, an inactive trading market in the reverse merger company’s securities, the existence of a low number of publicly held freely tradeable shares, if the reverse merger company has not had a Securities Act registration statement or other filing subjected to a comprehensive review by the SEC, or if the reverse merger company has disclosed that it has material weaknesses in its internal controls and has not yet implemented an appropriate corrective action plan.
Although the rule only refers to reverse mergers with a “shell company” and not an existing operating business, in my experience, NASDAQ will take the position that almost all reverse mergers are completed with a shell company. Even if a company has taken the position that it was not a shell company, and has not been challenged in that respect by the SEC, NASDAQ can and will, make its own review and determination on the point.
