Earlier this spring, the Nasdaq Stock Exchange (the "Nasdaq") filed a proposed amendment (the "Amendment") of its initial listing standards with the Securities and Exchange Commission (the "SEC"). The SEC approved the changes to Nasdaq's initial listing standards in July 2019, and these changes became effective this week, on August 5, 2019.

The Nasdaq amended the requirements for entry onto its exchange based on the characterization of a security as "unrestricted" or "restricted." Previously, securities subject to resale restrictions were included in the Nasdaq's liquidity calculations, but such securities were not freely transferrable or purchasable on the exchange. The Nasdaq had some concerns that restricted securities did not accurately contribute to a listed security's liquidity. The Amendment also changed the definition of "restricted securities" under the Nasdaq rules to include any securities subject to resale restrictions for any reason, including those acquired in unregistered offerings, employee stock benefit plans, offshore Regulation S offerings, lockup agreements or those within the ambit of Rule 144.

Nasdaq's definition disqualifies restricted securities from certain listing requirements. Most significantly, the change excludes restricted securities from the definition of "publicly held shares" for the purpose of calculating eligibility for all tiers of the Nasdaq. The change also excludes restricted securities from the calculations of the "minimum market value" and the "minimum number of round lot holders" required to list securities on the Nasdaq.

Furthermore, the Amendment imposes additional requirements on lot holders and on primary equity securities for Nasdaq eligibility, including changing the "minimum value requirement" for lot holders, so as to require at least 50% of a company's round lot holders to hold unrestricted securities with a market value of at least $2,500 for entry onto the exchange, and imposing an "average daily trading volume" requirement so as to mandate primary equity securities to have a minimum average volume of trade for over half of the 30 trading days prior to the listing of at least 2,000 shares. The Nasdaq stated that there would be an exemption for securities listed in connection with a firm commitment underwritten public offering of at least $4 million from this average daily trading volume requirement.

The text granting approval for the rule change can be found here.

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