Smaller Reporting Companies (SRCs)

Experienced Attorneys Assisting with Smaller Reporting Companies (SRCs)

The Securities and Exchange Commission (SEC) made significant changes to the definition of a "smaller reporting company" on June 28, 2018. These amendments were applied to Securities Act Rule 405, Exchange Act Rule 12b-2, and Item 10(f) of Regulation S-K.

The modification is anticipated to provide various advantages, with the primary aim of encouraging smaller companies to enter the U.S. public markets. This amendment broadens the scope of companies eligible for the designation of smaller reporting companies (SRC), making them eligible for the scaled disclosure requirements outlined in Regulation S-K and Regulation S-X. According to SEC estimates, approximately 966 additional companies are expected to qualify for SRC status in the initial year following the implementation of the new definition.

The revised definition of a Smaller Reporting Company (SRC), in line with proposals and recommendations from diverse market participants, introduces key changes. Under the new criteria, a company with a public float of less than $250 million now qualifies as an SRC, a substantial increase from the previous threshold of $75 million. Additionally, for companies without a determinable public float or with a public float below $700 million, SRC status is conferred upon those with less than $100 million in annual revenues in their most recently completed fiscal year. This represents a notable adjustment from the prior revenue threshold of $50 million, which applied to companies with no ascertainable public float.

Once considered an SRC, a company would maintain that status unless its float drops below $200 million if it previously had a public float of $250 million or more. The revenue thresholds have been increased for requalification such that a company can requalify if it has less than $80 million of annual revenues if it previously had $100 million or more, and less than $560 million of public float if it previously had $700 million or more.

The SEC has implemented complementary rule changes to align with the heightened threshold concept. Specifically, an amendment to Rule 3-05 of Regulation S-X raises the net revenue threshold within the rule from $50 million to $100 million. Consequently, companies are now permitted to exclude financial statements of acquired or to-be-acquired businesses for the earliest of the three fiscal years, as mandated by Rule 3-05, if the net revenues of that business fall below $100 million. This adjustment streamlines financial reporting requirements for businesses with lower net revenues, aligning with the broader changes in the definition of a Smaller Reporting Company.

Furthermore, the conforming changes include changes to the cover page for most SEC registration statements and reports, including, but not limited to, Forms S-1, S-3, S-4, S-11, 10-Q and 10-K.
While the new rules haven't altered the definitions of "accelerated filer" or "large accelerated filer," there are implications for companies with a public float of $75 million or more that qualify as Smaller Reporting Companies (SRCs). These companies will continue to be subject to accelerated filer requirements, including the expedited filing timelines for periodic reports and the obligation for accelerated filers to provide the auditor's attestation of management's assessment of internal control over financial reporting as mandated by Section 404(b) of the Sarbanes-Oxley Act. However, SEC Chair Clayton has instructed the SEC staff to propose additional changes to these definitions with the aim of reducing the number of companies that fall under the classification of accelerated filers.

Background

The discussion on disclosure requirements outlined in Regulation S-K, particularly concerning disclosures made in reports and registration statements filed under the Exchange Act of 1934 and the Securities Act of 1933, has gained prominence in recent years. Regulation S-K, as it has evolved through amendments, was introduced as part of a comprehensive disclosure initiative. Its objective is to serve as a unified regulatory framework, consolidating non-financial statement disclosures and the information mandated for inclusion in registration statements and reports filed under both the Exchange Act and the Securities Act.

A publicly traded company with securities registered under either Section 12 or subject to Section 15(d) of the Exchange Act is obligated to submit reports to the SEC, known as Reporting Requirements. These requirements are rooted in the fundamental principle of ensuring regular and transparent information flow to shareholders and the broader markets. However, over time, Regulation S-K has not kept pace with other rule changes. The demanding reporting standards, especially for smaller companies, have been identified as a hindrance to capital formation and a contributing factor to the decline in smaller Initial Public Offerings (IPOs). Additionally, investors have raised concerns about the quality and relevance of the information mandated for inclusion in these reports.

SEC disclosure requirements are tailored based on company size, and the SEC introduced the smaller reporting company category in 2007 to offer general regulatory relief to these entities. Prior to this regulatory change, a "smaller reporting company," defined in Securities Act Rule 405, Exchange Act Rule 12b-2, and Item 10(f) of Regulation S-K, was characterized by either: (i) having a public float below $75 million as of the last day of its most recently completed second fiscal quarter, or (ii) having no public float and annual revenues of less than $50 million during the most recently completed fiscal year for which audited financial statements are available.

     
Regulation S-K
Item 
    Scaled Disclosure Accommodation
  
    101 − Description of Business
    May satisfy disclosure obligations by describing the development of its business during the last three years rather than five years. Business development description requirements are less detailed than disclosure requirements for non-smaller reporting companies.
  
    201 − Market Price of and Dividends on the Registrant’s Common Equity and Related Stockholder Matters
    Stock performance graph not required.
  
    301 – Selected Financial Data
    It is not required.
  
    302 – Supplementary Financial Information
    It is not required.
  
    303 – Management’s Discussion and Analysis of Financial Condition and Results of Operations (MD&A)
    Two-year MD&A comparison rather than a three-year comparison.
Two-year discussion of the impact of inflation and price changes rather than three years.

Tabular disclosure of contractual obligations is not required.
  
    305 – Quantitative and Qualitative Disclosures About Market Risk
    It is not required.
  
    402 – Executive Compensation
    Three named executive officers rather than five.
Two years of summary compensation table information rather than three. Not required:

·         Compensation discussion and analysis.

·         Grants of plan-based awards table.

·         Option exercises and stock vested table.

·         Pension benefits table.

·         Nonqualified deferred compensation table.

·         Disclosure of compensation policies and practices related to risk management.

·         Pay ratio disclosure.
  
    404 – Transactions With Related Persons, Promoters, and Certain Control Persons
    Description of policies/procedures for the review, approval, or ratification of related party transactions is not required.
  
    407 – Corporate Governance
    Audit committee and financial expert disclosure is not required in the first year.
Compensation committee interlocks, and insider participation disclosure are not required.
  
    503 – Prospectus Summary, Risk Factors, and Ratio of Earnings to Fixed Charges
    No ratio of earnings to fixed charges disclosure is required. No risk factors are needed in Exchange Act filings..
  
    601 – Exhibits
    	Statements regarding the computation of ratios are not required.
  
    8-02 – Annual Financial Statements
    Two years of income statements rather than three years. Two years of cash flow statements rather than three years.
Two years of changes in stockholders’ equity statements rather than three years.
  
    8-03 – Interim Financial Statements
    Permits specific historical financial data instead of separate financial statements of equity investees.
  
    8-04 – Financial Statements of Businesses Acquired or to Be Acquired
    Maximum of two years of acquiree financial statements rather than three years.
  
    8-05 – Pro forma Financial Information
    Fewer circumstances under which pro forma financial statements are required.
  
    8-06 – Real Estate Operations Acquired or to Be Acquired
    Maximum of two years of financial statements for acquiring properties from related parties rather than three years..
  
    8-08 – Age of Financial Statements
    	Less stringent age of financial statements requirements.

Final Amendments To Smaller Reporting Company Definition

The SEC grapples with dual objectives: safeguarding investors and the marketplace by compelling companies to furnish essential disclosures for informed investment and voting decisions, while also fostering capital formation and minimizing compliance burdens for smaller entities. The SEC, in its efforts, aims to strike a balance. By elevating the financial thresholds for the smaller reporting company definition and thereby broadening the scope of companies eligible for scaled disclosure, the SEC believes it is aligning with its goals. This approach is seen as a responsive measure to address feedback and recommendations from various stakeholders, including the Advisory Committee on Small and Emerging Growth Companies, the SEC Government-Business Forum on Small Business Capital Formation, Congress, and industry participants.

The SEC consolidates numerous recommendations, initiatives, and comments in its rule release. One notable example is the September 2015 meeting of the SEC Advisory Committee on Small and Emerging Companies, which concluded with a finalized recommendation to the SEC regarding alterations to disclosure requirements for smaller publicly traded companies. Subsequently, the FAST Act, enacted on December 4, 2015, mandated the SEC to streamline or remove redundant, outdated, or unnecessary disclosure requirements for emerging growth companies, accelerated filers, smaller reporting companies, and other smaller issuers specified in Regulation S-K.

The SEC took into consideration the feedback it received on the initially proposed rule release, along with comments received in response to the published concept release and request for public comment on Regulation S-K. As mentioned earlier, the updated definition of a Smaller Reporting Company (SRC) now encompasses companies with a public float below $250 million, a significant increase from the previous $75 million threshold. Additionally, if a company lacks a determinable public float or has a public float below $700 million, it qualifies as an SRC if its annual revenues are less than $100 million in the most recently completed fiscal year. The previous revenue threshold was $50 million, and it included companies without an ascertainable public float.

The SEC implemented corresponding rule changes to align with the heightened threshold concept. Notably, there is an amendment to Rule 3-05 of Regulation S-X, which raises the net revenue threshold within the rule from $50 million to $100 million. Consequently, companies are now permitted to exclude financial statements of businesses, whether acquired or to be acquired, for the earliest of the three fiscal years as mandated by Rule 3-05, provided the net revenues of that business are less than $100 million. This adjustment streamlines financial reporting requirements, allowing for certain omissions based on the net revenue criterion.

Furthermore, the conforming changes include changes to the cover page for most SEC registration statements and reports, including, but not limited to, Forms S-1, S-3, S-4, S-11, 10-Q and 10-K.

The following summarizes the scaled disclosures available to smaller reporting companies. In addition, the FAST Act passed into law on December 4, 2015, amended Form S-1 to allow for forward incorporation by reference by smaller reporting companies. A smaller reporting company may now incorporate any documents filed by the company, following the effective date of a registration statement, into such an effective registration statement. In what was probably unintended in the drafting, the FAST Act changes only include smaller reporting companies, not emerging growth companies or non-accelerated filers. Other categories of filers, including accelerated and large accelerated filers, were already allowed to forward incorporated by reference. Accordingly, among the other benefits of the current proposed rule change, the number of companies that can utilize forward incorporation by reference in a Form S-1 will increase.

Amendments To Accelerated Filer And Large Accelerated Filer Definitions

The recent rule changes did not alter the definitions of "accelerated filer" or "large accelerated filer." Consequently, companies with a public float of $75 million or more that qualify as Smaller Reporting Companies (SRCs) will continue to be subject to the requirements applicable to accelerated filers. This includes adhering to the accelerated timeline for filing periodic reports and the obligation for accelerated filers to provide the auditor's attestation of management's assessment of internal control over financial reporting, as mandated by Section 404(b) of the Sarbanes-Oxley Act. However, SEC Chair Clayton has instructed the SEC staff to propose additional changes to these definitions with the aim of reducing the number of companies falling under the classification of accelerated filers.

The public float threshold for an accelerated filer is $75 million. Companies that currently file as accelerated filers would continue to do so under the new rules but would benefit from the scaled disclosure requirements available to smaller reporting companies. The filing deadlines for each category of filer are:

Statements Of Commissioners On Rule Amendment

Commissioners Hester Peirce and Michael Piwowar publicly expressed their views on the rule change, both supporting the amendment while expressing disappointment that it did not incorporate a differentiation in the definition of an accelerated filer. Both commissioners believe that the amendment falls short in reducing regulatory burdens and fostering an environment conducive to more companies going public. Section 404(b) of the Sarbanes-Oxley Act is highlighted as a significant responsibility for smaller public companies, and Commissioner Piwowar asserts that without changes in this regard, there won't be significant improvements in smaller companies' efforts to raise capital. Commissioner Peirce goes further, stating that the failure to align with the definition of an accelerated filer will create confusion for companies. Prior to the rule change, a smaller reporting company was permanently exempted from Section 404(b) compliance, but this exemption will no longer be applicable.

Ms. Peirce points to a poignant example from the comment letters. A group of biotech companies stated that money spent on compliance is less on research and development and that investors in a smaller biotech company are more interested in getting FDA approval than the auditors’ blessing on internal controls.

On the upside, Chair Clayton has committed to continue to review this matter and work on changes to the definition of accelerated filer and the requirements of 404(b) compliance.

Gayatri GuptaDecember 1, 2023

Nasdaq Compliance

The Nasdaq Stock Market features three tiers of listed companies, namely: (1) The Nasdaq Global Select Market, (2) The Nasdaq Global Market, and (3) The Nasdaq Capital Market. These tiers are characterized by progressively stringent listing requirements, with the Nasdaq Global Select Market setting the highest standards for initial listings and the Nasdaq Capital Market serving as the entry-level tier, particularly suitable for most small-cap issuers.

To list securities on Nasdaq, a company must fulfill minimum listing requirements, encompassing defined criteria related to financial performance, liquidity, and corporate governance. Nasdaq retains extensive discretion in the listing process and reserves the right to reject an application, even if the technical prerequisites are satisfied, if it deems such denial essential to safeguard the interests of investors and the public.

After securing a listing on Nasdaq, a company is obligated to adhere to ongoing listing standards. To initiate the listing process, a company seeking inclusion on Nasdaq must diligently complete and submit a comprehensive listing application to Nasdaq. This application should include specific documents and information as outlined by Nasdaq's requirements.

Typically, the application process spans a duration of four to six weeks. Once the application is submitted, a Nasdaq analyst is designated as the primary liaison with the company. Within two to three weeks of submission, the company can expect to receive an initial comment letter. The comment and review process persists until a decision is reached on the approval or denial of the application. Similar to filing with the SEC, a meticulously prepared Nasdaq application tends to attract fewer comments and facilitates a more streamlined process. Generally, the company's securities counsel assumes a leading role, serving as the primary contact for preparing the application and engaging in communication with Nasdaq.

Similarly to the SEC review process, Nasdaq conducts a thorough examination of publicly accessible information pertaining to a company. This encompasses, but is not limited to, SEC filings, the company's website, management communications and speeches, as well as press releases. The iterative nature of the review process typically doesn't necessitate a formal protocol, and communication is commonly facilitated through email correspondence and phone calls.

Listing Criteria For Nasdaq
For a company to list its securities on Nasdaq, it must satisfy the following criteria:

Specific Initial Requirements:
- Quantitative Standards: Meeting defined thresholds for both quantitative and qualitative factors.
- Qualitative Standards: Fulfilling certain qualitative benchmarks.
Continuing Requirements:
- Quantitative Criteria: Adhering to ongoing quantitative benchmarks.
- Qualitative Criteria: Maintaining specified qualitative standards.

The initial quantitative thresholds are typically set at a higher level than those required for continued listing. This distinction aims to ensure that companies achieve a sufficient level of maturity before being listed. Additionally, Nasdaq imposes rigorous corporate governance standards that listed companies must adhere to throughout their tenure on the exchange.

Before formally submitting a comprehensive listing application, a company has the option to pursue a preliminary listing eligibility review. In this stage, the Listing Qualifications Staff conducts a thorough examination of the company's public filings to assess its compliance with numerical listing requirements. Additionally, the team evaluates the company's adherence to corporate governance requirements outlined in the Marketplace Rules ("Rules"). This preliminary review provides valuable insights into the company's eligibility for listing on Nasdaq before committing to the full application process.

Upon completion of the preliminary review, the Listing Qualifications Staff will make an assessment regarding whether the company meets the numerical listing criteria. Additionally, any corporate governance or regulatory concerns raised during this phase will be considered to determine their impact on the listing approval. It's important to note that while the preliminary review provides insights, final approval necessitates the submission of a formal listing application. This application undergoes a thorough examination by the NASDAQ Listing Qualifications Staff. Furthermore, the final approval process involves satisfactory compliance with specific qualitative reviews. This includes an examination of the regulatory history of the company's officers, directors, and significant shareholders. Meeting these criteria is integral to obtaining the final approval for listing on Nasdaq.

Financial And Liquidity Requirements

    Requirements

    Equity Standard
    Market Value of Listed Standard
    Net Income Standard

    Listing Rules

    5505(a)
and
5505(b)(1)
    5505(a)
and
5505(b)(2)
    5505(a)
and
5505(b)(3)
    
    Stockholders Equity

    	$5 million
    	$4 million
    	$4 million
    
    The market value of publicly held shares

    $15 million
    $15 million
    $
      5 million
    
    Operating History

    	Two years
    N/A
    N/A
    
    The market value of listed securities

    N/A
    $50 million
    N/A
    
    Net income from continuing operations (in the latest fiscal
a year or in two of the last three
fiscal years)

    N/A
    N/A
    $750,000
    
    Publicly held shares

    	1 million
    	1 million
    	1 million
    
    Bid Price

    	$4
    	$4
    	$4)
    
    Closing Price

    	$3
    	$2
    	$43
    
    Corporate Governance

    Yes
    Yes
    Yes
    
    Total Shareholders

    300
    300
    300

Corporate Governance Requirements

Across all three tiers of the Nasdaq Stock Market, corporate governance requirements remain largely consistent. The categories encompassing corporate governance standards include:

Distribution of Annual or Interim Reports
Independent Directors
Audit Committee
Compensation Committee
Nomination of Directors
Code of Conduct
Annual Meetings
Solicitation of Proxies
Quorum
Conflict of Interest
Shareholder Approval
Voting Rights

These governance elements play a crucial role in ensuring transparency, accountability, and ethical conduct within listed companies, irrespective of the specific tier within the Nasdaq Stock Market.

Companies seeking listing on Nasdaq must adhere to specific corporate governance standards, including the following:

Compensation Committee with Independent Directors:
- The company is required to establish a compensation committee comprised of independent directors.
- The committee must consist of at least two members.
- Rule 5605(d)(2)(A) introduces an additional independence test for compensation committee members.
Responsibility for Executive Compensation:
- The compensation committee is tasked with determining or recommending to the entire board the compensation of the chief executive officer (CEO) and all other executive officers.

These standards are designed to ensure a level of independence and scrutiny in the decision-making processes related to executive compensation within the company.

The Application And Documents

The Nasdaq application package encompasses several key components:

Symbol Reservation Form:
- Used to request the reservation of a specific trading symbol for the company.
Listing Application:
- Requires supplemental documents and details about the company's financials, operations, and other pertinent information.
Listing Agreement:
- A formal agreement outlining the terms and conditions of the listing on Nasdaq.
Corporate Governance Certification:
- A certification affirming the company's commitment to meeting Nasdaq's corporate governance standards.
Initial Application Fee:
- Payable via check or wire transfer, this fee is a prerequisite for initiating the listing process.
Logo Submission Form:
- Used for submitting the company's logo for use in Nasdaq's materials.

These application forms are completed through the Nasdaq website listing center, utilizing the online platform to facilitate the submission of supplemental and supporting documents. It is advisable to thoroughly review all required paperwork in advance, ensuring that the necessary information is readily available before initiating the application process.

Symbol Reservation Form

The symbol reservation form is a concise, one-page electronic form where applicants input information for Nasdaq's consideration. Nasdaq symbols, limited to 1-5 characters, adhere to guidelines established by the Intermarket Symbols Reservation Authority (ISRA). The ISRA system is designed to organize symbols efficiently, prevent duplication, and reduce programming and operational complexities. The ISRA operates within the framework of the NMS Symbology Plan, a plan utilized by Nasdaq.

Key details about the symbol reservation process:

Symbol Choices:
- The form allows applicants to propose three symbol choices in order of preference.
- While Nasdaq generally honors the first choice if available, it retains the authority to assign, rescind, or reassign a trading symbol at its discretion.
ISRA and Nasdaq Authority:
- The ISRA and Nasdaq have overarching authority in managing the assignment of symbols.
Additional Information:
- The form captures essential details about the issuer and the planned public offering.
- Information may include the name of the attorney, lead underwriter (if applicable), CEO and CFO names, yearly revenues, company website, and the sector in which the company operates.

Completion of this symbol reservation form initiates the process of securing a trading symbol on Nasdaq, and it's essential to provide accurate and comprehensive information to facilitate this stage of the listing application.

The Application

The Nasdaq listing application process is comprehensive and varies based on the circumstances surrounding the listing sought. There are twelve distinct listing applications catering to different situations, including changes of control, switches from other exchanges or markets, spin-offs, and initial public offerings (IPOs). Each application, spanning approximately seven pages, collects detailed information about the company, covering areas such as address, contact and billing details, securities attorney and auditor information, transfer agent particulars, and the company's officers and directors. Specific information on the company's securities, including type, par value, and cusip number, is also required.

Furthermore, the application mandates disclosure of legal proceedings involving the company, its officers or directors, or significant shareholders over the past ten years. This encompasses inquiries, investigations, lawsuits, litigation, arbitrations, and other legal and administrative proceedings. Documents supporting the backup and final disposition of these matters must be provided.

Regarding private offerings within the prior six months, including bridge financings, shelf registrations, and Regulation S offerings, the company is required to disclose such activities. Additionally, the application delves into the company's background, posing questions to ensure compliance with seasoning rules.

While Nasdaq retains the right to request relevant supporting documents, specific documents are mandatory based on the application type. For an uplisting from an existing U.S. market, the application must include letters from three market makers confirming their commitment to making a market in the subject securities. Other required documents include a listing agreement, a logo submission form, a corporate governance certification form, regulatory correspondence over the past 12 months, and shareholder confirmation documents. Nasdaq often seeks confirmation from the company's transfer agent regarding the eligibility of the security for the direct registration program (DRS).

During the review of an up listing application, Nasdaq may request additional information, such as a Broadridge share range analysis and NOBO list, a certified shareholder list, details about mitigating any going concerns or opinions, income statement and/or balance sheet projections for the next 12 months, and confirmation of Sarbanes Oxley Section 302 and 906 certifications by the company, among other inquiries related to compliance and financial matters.

The Listing Agreement

The Listing Agreement is a concise document, spanning two pages, serving as a formal affirmation of the company's commitment to adhere to all rules and regulations set forth by the Nasdaq Stock Market. It includes provisions for indemnifying and holding Nasdaq harmless from liability. Notable points in the agreement include:

Compliance Assurance:
- The company explicitly agrees to comply with all rules and regulations stipulated by the Nasdaq Stock Market.
Indemnification Clause:
- The company indemnifies Nasdaq, meaning it undertakes to compensate or reimburse Nasdaq for any losses or damages incurred. This includes harm resulting from third-party trademark infringement claims related to the company's symbol and logo, as well as Nasdaq's use of the same.
Disclaimer of Warranty and Liability:
- The agreement contains a disclaimer of warranty and liability against Nasdaq for trading issues, with the exception of those resulting from gross negligence or willful misconduct.

This agreement establishes a clear framework for the relationship between the listed company and Nasdaq, emphasizing the company's commitment to regulatory compliance while providing indemnification for certain specified matters and delineating the scope of Nasdaq's liability.

Corporate Governance Certification Form

The corporate governance certification form certifies compliance with the governance requirements related to an audit committee, director nomination process, compensation committee, board composition, executive sessions, quorum, and codes of conduct. Where an exemption applies, the form requires specification of the exemption terms. The document specifies the different rules and exceptions in a check-the-box format.

Logo Submission Form

The logo submission form contains the guidelines for the logo and affirms Nasdaq’s rights to use the same. Nasdaq uses company logos in its marketing materials, on the MarketSite Video Wall and Tower, and websites.

Fees

Entry fees are based upon the aggregate number of shares to be listed at the time of initial listing, regardless of class, with a maximum cap of $75,000. Fees are assessed on the entry date in The Nasdaq Capital Market, except for $5,000, representing a non-refundable application fee. This fee must be submitted with the company’s application.

Nasdaq does not charge application or entry fees for any securities transferred from a national securities exchange.

Benefits Of Trading On An Exchange

There are many benefits to trading on an exchange instead of the OTC Markets. The most significant benefits to a business are the ability to attract analyst coverage and institutional investors and the corresponding increase in liquidity that comes with both. Stocks that trade on Nasdaq tend to have a lower bid/offer spread — again encouraging trading volume and liquidity. Exchange-traded securities are exempt from the penny stock definition, allowing more market maker and broker-dealer participation. As further explained below, a broker-dealer cannot recommend a penny stock transaction to its retail clients. Therefore, no analysts, financial advisors, or institutional investors make recommendations for purchases of penny stocks.

As an aside, this is one of the reasons that OTC Markets created the OTCQX market tier, which does not list penny stocks. It is also why the small-cap industry is pushing for a supported valid venture exchange (for further reading.

In today’s world, depositing stock and/or trade-in non-exchange traded securities is increasingly difficult. Despite the congressional efforts and SEC rulemaking in support of small-cap capital formation (for example, the JOBS Act, including the emerging growth company regulations, new Regulation A+ and Title III Crowdfunding and the new FAST Act), through enforcement and investigative proceedings, both the SEC and FINRA continue to apply pressure on broker-dealers, clearing firms and transfer agents to reduce the secondary trading and free flow of penny stocks. For more information on difficulties in depositing stocks.

Further On Penny Stocks

NASDAQ and NYSE MKT traded securities are exempted from the definition of a “penny stock” due to the initial and ongoing listing standards. Penny stock rules focus on broker-dealers’ activity in effectuating trades in penny stocks. The Securities Enforcement Remedies and Penny Stock Reform Act of 1990 (the “Penny Stock Act”) prohibits broker-dealers from effecting transactions in penny stocks unless they comply with the requirements of Section 15(h) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). The rules promulgated thereunder, particularly Exchange Act rules 15g-1 through 15g-100 (the “penny stock rules”).

Section 15(h) of the Exchange Act provides that no broker or dealer may effectuate a customer’s purchase or sale of any penny stock unless such broker or dealer.

Approves the customer for the specific penny stock transaction and receives a written agreement to the transaction from the customer.
Furnishes the customer a risk disclosure document describing the risks of investing in penny stocks.
Discloses to the customer the current market quotation, if any, for the penny stock, including the bid and ask prices and the number of shares that apply to such bid and ask prices.
Discloses to the customer the amount of compensation the firm and its broker will receive for the trade.

In addition, after executing the sale, a broker-dealer must send its customer monthly account statements showing the market value of each penny stock held in the customer’s account.

Moreover, brokers and dealers subject to the penny stock rules are subject to additional disclosure requirements outlined in Rules 15g-2 through 15g-9. For my information on penny stocks and the rules affecting broker-dealer activity.

Securities Lawyer Blog

Smaller Reporting Companies (SRCs)

Amendments To Accelerated Filer And Large Accelerated Filer Definitions

Listing Criteria For NasdaqFor a company to list its securities on Nasdaq, it must satisfy the following criteria:

Licensed in District of Columbia, State of Colorado, US District Court for the District of Columbia, US District Court for the District of Colorado, with pro hac vice Admission for the State of Maryland and Virginia.

Listing Criteria For Nasdaq
For a company to list its securities on Nasdaq, it must satisfy the following criteria: