When a company (the “Company“) is considering submitting a listing application to list its common shares for trading on the NYSE MKT LLC (formerly AMEX, “NYSE MKT”) there are certain requirements that need to be fulfilled.  This blog post summarizes the listing and corporate governance requirements and listed company fees of NYSE MKT for common equity.  Different standards or fees may apply to other securities.  All securities listed on NYSE MKT must be registered under the Securities Exchange Act of 1934, as amended (the “Exchange Act”).  Registration under the Exchange Act normally represents the largest portion of the time and expense of an NYSE MKT listing.

Attached to this memorandum are Table 1, summarizing the minimum numerical entry criteria, and Table 2, summarizing the original and annual listing fees for common equity of companies traded on NYSE MKT.

I.         NUMERICAL LISTING GUIDELINES

Except with respect to Securities and Exchange Commission (“SEC”) registration requirements, NYSE MKT retains broad discretion to approve securities for listing under the standards outlined in the NYSE MKT Company Guide, which sets forth, among other things, the requirements for listing and continued listing on NYSE MKT.

NYSE MKT considers the numerical criteria presented in Table 1 in evaluating a company for initial listing of securities, but other factors affecting public confidence in the market for the company’s securities are also considered.[1]  NYSE MKT looks at “the nature of an issuer’s business, the market for its products, its regulatory history, its past corporate governance activities, the reputation of its management, its historical record and pattern of growth, its financial integrity . . . its demonstrated earning power and its future outlook”.  Satisfaction of the numerical criteria does not guarantee a listing.  On the other hand, failure to satisfy the numerical criteria does not disqualify a company automatically from listing its securities.

Financial Criteria  and Public Float.[2]  NYSE MKT has four standard eligibility tests for initial listing of common equity securities on NYSE MKT.  See, Table 1.  Under each of the standards, a company must satisfy NYSE MKT public distribution criteria, which requires a share distribution of at least:

  • 800 public[3] shareholders and 500,000 shares publicly held;
  • 400 public shareholders and 1 million shares publicly held; or
  • 400 public shareholders, 500,000 shares publicly held and an average trading volume of approximately 2,000 shares or more for the previous 6 months.

In addition to NYSE MKT distribution requirements, an issuer must also satisfy the numerical criteria under one of the four eligibility standards.

Standard One:  A company may qualify for listing under Standard One if the company has: (i) shareholders’ equity of at least $4 million; (ii) pre-tax income of at least $750,000 in the company’s last fiscal year or in two of the company’s last three fiscal years; (iii) a minimum share price of $3; and (iv) a public float of at least $3 million.

Standard Two:  A company may qualify for listing under Standard Two if the company has: (i) shareholders’ equity of at least $4 million; (ii) at least a 2 year operating history; (iii) a minimum share price of $3; and (iv) a public float of at least $15 million.

 Standard Three:  A company may qualify for listing under Standard Three if the company has: (i) shareholders’ equity of at least $4 million; (ii) total market capitalization of at least $50 million; (iii) a minimum share price of $2 per share; and (iv) a public float of at least $15 million.

Standard Four:  A company may qualify for listing under Standard Four if the company has: (i) a minimum share price of $3; (ii) a public float of at least $20 million; and (iii)(A) total market capitalization of at least $75 million or (B) total assets of at least $75 million and total revenue of at least $75 million (in the company’s last fiscal year or in two of the company’s last three fiscal years).

II.        ORIGINAL LISTING AND ADDITIONAL LISTING; FEES

  1. Original Listing

An issuer must complete a listing application and listing agreement in order to seek qualification of its securities for listing on NYSE MKT.  There are normally seven steps in the NYSE MKT listing process:

  1. Listing Application and Agreement. The issuer files a listing application and agreement with NYSE MKT along with (a) an Officers, Directors and Shareholders Worksheet; (b) a Distribution and Trading Information Worksheet; and (c) an Engineer’s Reserve Report (for oil and gas companies) or Table of Lands and Engineer’s Mining and Reserve Report (for mining companies).  The submission must also include the applicable NYSE MKT listing fees.  See, “Listing Fees” below.
  2. Exchange Act Registration. The issuer’s class of equity securities listed for trading on NYSE MKT are required to be registered under Section 12(b) of the Exchange Act.  The issuer must file its registration statement with the SEC and submit copies of the registration to NYSE MKT.
  3. Reservation of Ticker Symbol. The issuer will submit a request to reserve a three letter ticker trading symbol with NYSE MKT.
  4. Review of Listing Application and Approval. The NYSE MKT listing qualification department and a listing qualification analyst will review the issuer’s listing application and may request additional information.  A listing application will not be approved unless the issuer has cleared all comments issued by the SEC related to the issuer’s Exchange Act registration.  If the issuer satisfies the criteria for listing, the NYSE MKT listing qualification department will provide conditional approval for listing.
  5. Assignment of Specialist Unit. NYSE MKT is an auction market in which each stock is assigned to a specialist unit that has an affirmative obligation to maintain a fair and orderly market in the absence of public orders.  The issuer may choose either to be assigned a specialist unit by NYSE MKT, or to select its own specialist from a list of the seven most qualified specialist units compiled by NYSE MKT.
  6. Effectiveness of Exchange Act Registration. Upon receiving conditional approval for NYSE MKT listing the issuer will request acceleration of effectiveness of its Exchange Act registration with the SEC.
  7. Commencement of Trading. The issuer and NYSE MKT determine the initial trading date for the issuer’s securities on NYSE MKT.
  8. Additional Listing

NYSE MKT requires listed companies to apply for and obtain approval to list additional securities of a listed class before they are issued.  NYSE MKT recommends filing an additional listing application one to two weeks before the date on which formal action by NYSE MKT is necessary.

NYSE MKT also requires listed companies to publicize and notify NYSE MKT immediately of any action taken by a listed company in respect to payment or non-payment of a dividend, including stock dividends, stock splits or similar actions.

III.       LISTING FEES

Original Listing.  Original listing fees as indicated are payable to NYSE MKT with respect to the number of shares of the class outstanding in accordance with the schedule in Table 2.  The fee is figured on a graduated scale.  The maximum fee payable by an issuer in connection with an NYSE MKT original listing is $70,000.[4]

Annual Fees.  NYSE MKT charges annual fees (in accordance with the schedule in Table 2) based on the number of shares outstanding according to information available on NYSE MKT records as of December 31 of the preceding year.  NYSE MKT counts the total number of all classes of shares (excluding treasury shares) outstanding with a maximum annual listing fee of $40,000.  The annual fees are in addition to the initial listing fee.

Additional Listing.  NYSE MKT charges fees for additional listing in the amount of $0.02 per additional share subject to a minimum fee of $2,000 and a maximum fee of $45,000 per application.   NYSE MKT charges additional listing fees upon the reservation of shares for issuance under remunerative plans and otherwise upon the issuance of shares.  The annual maximum fee per company for listing additional shares is $60,000.

IV.       CORPORATE GOVERNANCE RULES

The following are the material corporate governance requirements for NYSE MKT currently in effect as of the date of this memorandum.

Securities Transactions

Option Plans and Other Stock Compensation Plans. With a few limited exceptions, NYSE MKT requires shareholder approval of the establishment of any stock option or purchase plan or other equity compensation arrangement pursuant to which options or stock may be acquired by officers, directors, employees or consultants.

NYSE MKT also requires shareholder approval of any material amendment to any plan or arrangement described above.  Under the NYSE MKT guidelines, a material amendment includes, but is not limited to:

(a)        any material increase in the number of shares to be issued under the plan (other than to reflect a reorganization, stock split, merger, spinoff or similar transaction);

(b)        any material increase in benefits to participants, including any material change to: (i) permit a repricing (or decrease in exercise price) of outstanding options, (ii) reduce the price at which shares or options to purchase shares may be offered, or (iii) extend the duration of a plan;

(c)        any material expansion of the class of participants eligible to participate in the plan; and

(d)        any expansion in the types of options or awards provided under the plan;

provided, however, that if the terms of the plan as approved by shareholders permit a specific action without further shareholder approval, NYSE MKT will not generally require a further shareholder approval of such action.  Notwithstanding the foregoing, if the plan contains any provision for automatic increases in the shares available under the plan (an “evergreen formula”), or for automatic grants pursuant to a dollar-based formula, the plan cannot have a term in excess of ten years unless shareholder approval is obtained every ten years.  Plans that do not contain a formula and do not impose a limit on the number of shares available for grant require shareholder approval of each grant under the plan.

NYSE MKT exempts from the foregoing shareholder approval requirements certain issuances (a) made to an individual not previously an employee or director of the company as a material inducement to such individual’s employment, (b) made under a tax-qualified, non-discriminatory employee benefit plan that meets the requirements of Section 401(a) or 423 of the Internal Revenue Code of 1986 (a “Tax Qualified Plan”) (these Sections refer to certain tax-qualified retirement and pension plans, and certain tax-qualified stock purchase plans) as well as a parallel nonqualified plan which is a pension plan within the meaning of the Employee Retirement Income Security Act if maintained parallel to a Tax Qualified Plan, or a comparable plan for non-U.S. employees if maintained parallel to a Tax Qualified Plan for U.S. employees, (c) made pursuant to a plan that merely provides a convenient way to purchase shares in the open market or from the issuer at fair market value, (d) made pursuant to a plan or arrangement relating to an acquisition or merger, and (e) of warrants or rights issued generally to all security holders of the company or stock purchase plans available on equal terms to all security holders of the company (such as a typical dividend reinvestment plan).  The availability of these exemptions is subject to further requirements and limitations under NYSE MKT rules, and the listed company is required to notify NYSE MKT in writing with respect to the use of any of the exemptions.

Acquisitions.  NYSE MKT requires shareholder approval of the issuance of securities in connection with the acquisition of stock or assets of another company under certain circumstances.  Shareholder approval is required if an officer, director or principal shareholder of the listed company, directly or indirectly, has a five percent or greater interest (or such persons collectively have a ten percent or greater interest) in the company or assets to be acquired or in the consideration to be paid in the transaction or series of related transactions and the common stock (or securities convertible into common stock) potentially to be issued could increase the outstanding common shares by five percent or more.

NYSE MKT also requires shareholder approval in connection with the acquisition of stock or assets of another company where the potential issuance of common stock or securities convertible into common stock could result in an increase of twenty percent or more of the outstanding common stock of the listed company.

Issuance of Shares.   NYSE MKT requires shareholder approval of the sale or issuance at less than the greater of book or market value of common stock (or securities convertible into common stock) which, together with sales by officers, directors and principal shareholders, aggregates twenty percent or more of the common stock outstanding prior to such issuance.

Other Transactions.  NYSE MKT requires shareholder approval when the issuance or potential issuance of additional shares will result in a change of control of the issuer, including, but not limited to, “backdoor listings,” i.e., acquisitions in which an unlisted company effectively acquires control of a listed company.  Where shareholders of a listed company will hold less than fifty percent of its common stock after an acquisition, the listed company should seek prior review by NYSE MKT.

Voting

Quorum.  NYSE MKT recommends a minimum quorum requirement for a shareholder meeting of one-third of the outstanding shares of common stock.[5]  In addition, a company listed on NYSE MKT is required to state its quorum requirement in its bylaws.

Shareholder Approval Requirements.  Where required, shareholder approval for NYSE MKT listed companies must be by a majority of the votes cast in person or by proxy.

DTC Direct Registration

All NYSE MKT listed securities are required to be eligible to participate in the Direct Registration System (“DRS”). To be DRS-eligible, companies must provide shareholders with the ability to hold company securities in book-entry (uncertificated) form.  The NYSE MKT rules do not require companies to participate in the DRS; however, all listed securities must be eligible to participate in the DRS.

The DRS allows an investor’s ownership to be recorded and maintained on the books of the issuer or the transfer agent without the issuance of a physical stock certificate.  Currently, the DRS operated by the Depository Trust Company (“DTC”) meets the DRS definition in the SEC’s rules (a direct registration system operated by a registered clearing agency).  To be eligible to participate in the DRS, companies must:

  1. Use a transfer agent that meets DTC’s DRS transfer agent requirements;
  2. Make certain that the transfer agent instructs DTC to designate the company’s securities as “direct registered eligible securities;” and
  3. Ensure that the company’s governing documents allow for participation in the DRS (e., allow shares to be held in book-entry form), which may require an amendment to some companies’ governing documents.[6]

Companies should determine whether their transfer agent is or can get on the DTC-approved list and notify the transfer agent to instruct DTC as indicated above.  In addition to complying with requirements one and two above, a company must review its applicable state corporate law and its governing documents to determine whether an amendment to the articles and/or bylaws is required to provide for uncertificated securities.

Independent Directors[7]

In most cases, a majority of members of the board of directors of an NYSE MKT listed company must be independent directors.[8]  Each NYSE MKT listed company’s board of directors must affirmatively determine that an independent director has no material relationship with the company that would interfere with the exercise of independent judgment.  The following persons are excluded from the definition of “independent director”:

  • A director who is an executive officer or employee of the company, its parent or any subsidiaries.
  • A director who is or was employed by the company, its parent or any of its subsidiaries for the current or any of the past three years, other than prior employment as an interim executive officer (provided the interim employment did not exceed one year).
  • A director who accepts, or has a “Family Member”[9] that accepts, any compensation from the company, its parent or any of its subsidiaries in excess of $120,000 during any twelve consecutive months in the three years preceding determination of independence, other than compensation for board or committee service, benefits under a tax-qualified retirement plan, non-discretionary compensation, compensation to Family Members that are non-executive employees, payments solely from investments in the company’s securities, loans permitted under Section 13(k) of the Exchange Act and certain loans and payments from a financial institution if of a non-compensatory nature.
  • A director who has a Family Member who is, or has been in any of the past three years, employed by the company, its parent or any of its subsidiaries as an executive officer.
  • A director who is, or has a Family Member that is, a partner in, or a controlling shareholder or an executive officer of, any organization to which the company made, or from which the company received, payments (other than those arising solely from investments in the company’s securities or payments under non-discretionary charitable contribution matching programs) that exceed 5% of the organization’s consolidated gross revenues for that year, or $200,000, whichever is more, in the most recent three fiscal
  • A director who is, or has a Family Member that is, employed as an executive of another entity where any of the company’s executives serve on that entity’s compensation committee in any of the most recent three fiscal
  • A director who is, or has a Family Member that is, a current partner of the company’s outside auditor or was a partner or employee of the company’s outside auditor who worked on the company’s audit at any time during any of the past three years.
  • A director who, in the case of a company that is an investment company, is an affiliate or has a Family Member that is an affiliate of the company, other than in his or her capacity as a member of the board of directors or any board committee.
  • In addition, a director would not be independent if the director would not be able to exercise independent judgment in carrying out the responsibilities of an independent director for any reason.

Each listed company must disclose in its annual meeting proxy statement (or if the company does not file an annual proxy statement, in its annual report on Form 10-K, those directors that the board of directors have determined to be independent.

Audit Committee Requirements

The NYSE MKT rules adopt changes mandated by SEC Rule 10A-3 to prohibit the listing of any security of an issuer that is not in compliance with the specified minimum audit committee standards with respect to independence and responsibilities.  The rules require an issuer to meet the following audit committee requirements:

  • Each audit committee must consist of three members, and each member must meet the independence criteria under Rule 10A-3[10] and meet the definition of independent director under the NYSE MKT rules.[11]  An NYSE MKT listed company must notify NYSE MKT promptly after an executive officer becomes aware of any material non-compliance with the independence requirements. If an issuer fails to comply with such independent directors requirement due to one vacancy, or one director ceases to be independent due to circumstances beyond the director’s reasonable control, the issuer would be required to regain compliance with the requirement by the earlier of its next annual shareholders meeting or one year from the occurrence of the event that caused the failure to comply with this requirement.  The issuer must immediately provide NYSE MKT notice if any of these circumstances arises.  In addition, each audit committee member must not have participated in the preparation of the financial statements of the issuer or any current subsidiary of the issuer at any time during the past three years.
  • Financial Literacy. All audit committee members must be able to “read and understand fundamental financial statements, including a company’s balance sheet, income statement and cash flow statement”.
  • Financial Expert. At least one member of the audit committee must have accounting or financial management expertise.  NYSE MKT rules define the required expertise as “past employment experience in finance or accounting, requisite professional certification in accounting, or any other comparable experience or background which results in the individual’s financial sophistication, including but not limited to being or having been a chief executive officer, chief financial officer or other senior officer with financial oversight responsibilities”.  The Sarbanes-Oxley Act of 2002 (“Sarbanes-Oxley”) and the SEC rules require issuers to identify the members on the audit committee that meet the requirements of an “audit committee financial expert” under the SEC rules.
  • Audit Committee Charter. The board of directors must adopt a written charter for the audit committee.  The charter must specify the scope of the committee’s responsibilities (including structure, processes and membership requirements), ultimate authority and responsibility of the committee to select, evaluate and replace the outside auditors and committee responsibility to ensure and monitor auditor independence.  The charter must also require that the audit committee be vested with all responsibilities and authority required by Rule 10A-3.
  • Responsibilities of Independent Auditors. The audit committee must be directly responsible for the appointment, compensation, retention, termination and oversight of the work of the issuer’s independent auditors and the independent auditors must report directly to the audit committee.  The audit committee will also be responsible for resolving disagreements between the auditors and management.
  • Accounting Matter Complaints. The audit committee will be responsible for establishing procedures for the receipt, retention and treatment of complaints regarding accounting, internal financial controls or auditing matters.  These procedures must provide for confidential, anonymous submissions by employees related to questionable accounting or auditing matters.
  • Advisor Engagements and Funding. The audit committee must have the authority to engage independent legal counsel and other advisors that it determines are necessary to carry out its duties.  The rules also require the issuer to provide appropriate funding to the audit committee to pay auditors and any advisors.
  • Audit Committee Meetings. Under the NYSE MKT rules, audit committees are required to hold meetings on at least a quarterly basis.

Proxy materials for annual meetings are required to contain a report of the audit committee stating, among other things, that the committee has recommended to the full board the inclusion of the audited financial statements in the issuer’s annual report.

Related Party Transactions

An NYSE MKT listed company’s audit committee or a comparable body of the board of directors must oversee and conduct an appropriate review of related party transactions.

Shareholder Meetings

An NYSE MKT listed company must hold an annual shareholder meeting no later than one year after the end of its fiscal year.  At each annual meeting, shareholders must be afforded the opportunity to discuss company affairs with management and, if required by the issuer’s governing documents, to elect directors.  The NYSE MKT annual meeting requirement does not supplant any applicable state, provincial or federal securities laws concerning annual meetings.

With respect to any matter requiring shareholder authorization, an NYSE MKT listed company must either hold a shareholder meeting and solicit proxies pursuant to a proxy statement conforming to SEC proxy rules, or use written consents in lieu of such meeting as permitted by applicable law.[12]

Notice Requirements for Shareholder Meetings

An NYSE MKT listed company must give shareholders written notice at least ten days in advance of all shareholders’ meetings and provide for such notice in its bylaws.  The company must provide NYSE MKT notice of a record date as soon as practicable, but no less then ten days prior to the record date.  If a company plans to request that brokers forward proxy-soliciting material to customers, it should communicate with the brokers at least ten days prior to the record date.

Board Meetings, Meetings of Independent Directors and Other Requirements

Listed companies are also required to hold board meetings on at least a quarterly basis, and the independent directors serving on the board must meet in executive session (i.e., without the presence of non-independent directors) as often as necessary but at least once a year.  Audit Committees are required to meet at least quarterly.

Listed companies are required to promptly issue a press release disclosing any board changes and vacancies.  In addition, listed companies are required to promptly notify NYSE MKT (and confirm in writing) of any changes of directors or officers.

Listed companies may not have a board of directors consisting of more than three classes of directors and each class must be of approximately the same size and tenure.  Directors’ terms of office should not exceed three years.  In addition, all NYSE MKT employees and floor members are prohibited from serving on the board of directors of an NYSE MKT listed company.

Compensation of Officers

The compensation of the CEO and all other officers must be determined or recommended to the board for determination either by a majority of the independent directors, or by a compensation committee comprised solely of independent directors.[13] The CEO must not be present during the deliberations or vote.

Nomination of Directors

Director nominees must be selected, or recommended for the board’s selection, either by a majority of independent directors or by a nominating committee comprised solely of independent directors.[14]  This provision would not apply in cases where either the right to nominate a director legally belongs to a third party, or the company is subject to a binding obligation that requires a director nomination structure inconsistent with this requirement and was effective prior to December 1, 2003.  Each company will be required to certify that it has adopted a formal written charter or board resolution, as applicable, addressing the nominations process and such related matters as may be required under the federal securities laws.

Accounting

NYSE MKT requires listed companies to be audited by an independent public accountant that participates in a peer review program and within 18 months receives a review that the auditor’s system of quality control meets standards comparable to those of the American Institute of Certified Public Accountants.

Annual Reports

Any NYSE MKT listed company that is required to file with the SEC an annual report that includes audited financial statements (including on Form 10-K, is required to simultaneously make such annual report available to the company’s shareholders on or through the company’s website.  Annual reports must be submitted to shareholders and filed with NYSE MKT at least at least ten days prior to the company’s annual meeting, and not later than four months after the close of its last preceding fiscal year.  Three copies of the annual report must be filed with NYSE MKT.

An NYSE MKT listed company must disclose in its annual report to security holders, for the year covered by the report:  (a) the number of unoptioned shares available at the beginning and at the close of the year for the granting of options under an option plan; and (b) any changes in the exercise price of outstanding options, through cancellation and reissuance or otherwise, except price changes resulting from the normal operation of anti-dilution provision of options.

An NYSE MKT listed company must also post on its website a prominent undertaking to provide a hard copy of the company’s complete audited financial statements to all holders upon request, free of charge, and simultaneously issue a press release stating that its annual report has been filed with the SEC.  The press release must specify the company’s website address and indicate that shareholders may receive a hard copy of the company’s complete audited financial statements upon request, free of charge.

Listed companies that provide their audited financial statements to beneficial shareholders in a manner consistent with the physical or electronic delivery requirements for annual reports set forth in SEC Rules 14a-3 (“Information to be Furnished to Security Holders”) and 14a-16 (“Internet Availability of Proxy Materials”) are not required to post the undertaking on their website or issue a press release.  Rule 14a-3(b) requires that an annual report precede or accompany a proxy statement relating to a meeting or consent of shareholders at which directors are to be elected and be delivered to all beneficial shareholders.

 

Quarterly Reports/Interim Statements

NYSE MKT recommends, but does not require, a listed company to distribute quarterly reports/interim statements (with unaudited interim financial statements) to shareholders.  If an NYSE MKT listed company does not distribute quarterly reports/interim statements to shareholders, it is recommended that it furnish copies upon request.  Regardless, quarterly results must be disseminated by press release, unless NYSE MKT waives this requirement because the nature of the company’s business would make disclosure impracticable or misleading.  Three copies must also be sent to NYSE MKT.

Disclosure

Disclosure Policies.  Among other things, a listed company is required: (a) except in unusual circumstances,[15] to make immediate public disclosure, in a manner designed to obtain the widest possible public dissemination, of all material information concerning the company’s affairs or about events or conditions in the market for its securities, where such information is likely to have a significant effect on the price of any of its securities, or is likely to be considered important by a reasonable investor in determining a choice of action; (b) to clarify, as promptly as possible, a rumor or report that the company becomes aware of and that contains information that is likely to have, or has had, an effect on the trading in its securities, or would be likely to have a bearing on investment decisions; (c) to make inquiry into unusual market action in the company’s securities, to determine whether rumors or other conditions requiring corrective action exist, and, if so, to take whatever action is appropriate; or, if after such inquiry, the unusual market action remains unexplained, to issue a “no news” release; (d) not to make unwarranted promotional disclosure, such as inappropriately worded news releases, public announcements not justified by actual developments in a company’s affairs, exaggerated reports or predictions, flamboyant wording and other forms of overstated or over-zealous disclosure activity which may mislead investors and cause unwarranted price movements and activity in the company’s securities; (e) to publicly disclose that it has received an audit opinion that contains a going concern qualification, as promptly as possible, but not later than seven calendar days following the filing of the audit opinion in a public filing with the SEC; (f) to publicly disclose that it has received a written notice indicating that NYSE MKT staff has determined that the company is noncompliant and/or has failed to satisfy one or more continued listing requirements; and (g) to publicly disclose that it has received a written notice indicating that NYSE MKT has determined to remove the company’s securities from listing or unlisted trading as a result of non-compliance with the continued listing requirements.

News Dissemination:  NYSE MKT considers that the conduct of a fair and orderly market requires every listed company to make available to the public information necessary for informed investing and to take reasonable steps to ensure that all who invest in its securities enjoy equal access to such information.

The following is a summary of NYSE MKT’s disclosure policies

  1. Immediate public disclosure of material information — A listed company is required to make immediate public disclosure of all material information concerning its affairs, except in unusual circumstances.
  2. Thorough public dissemination — A listed company is required to release material information to the public in a manner designed to obtain the widest possible public dissemination.
  3. Clarification or confirmation of rumors and reports — Whenever a listed company becomes aware of a rumor or report, true of false, that contains information that is likely to have, or has had, an effect on the trading in its securities, or would be likely to have a bearing on investment decisions, the company is required to publicly clarify the rumor or report as promptly as possible.
  4. Response to unusual market action — Whenever unusual market action takes place in a listed company’s securities, the company is expected to make inquiry to determine whether rumors or other conditions requiring corrective action exist and, if so, to take whatever action is appropriate.
  5. Unwarranted promotional disclosure — A listed company should refrain from promotional disclosure activity which exceeds that necessary to enable the public to make informed investment decisions
  6. Insider trading — Insiders should not trade on the basis of material information which is not known to the investing public. Moreover, insiders should refrain from trading, even after material information has been released to the press and other media, for a period sufficient to permit thorough public dissemination and evaluation of the information.
  7. Receipt of written delisting notice — A company is required to publicly disclose that it has received a written notice indicating that NYSE MKT has determined to remove the company’s securities from listing (or unlisted trading) as a result of non-compliance with the continued listing requirements.
  8. Receipt of audit opinion with going concern qualification — A company is required to publicly disclose that it has received an audit opinion that contains a going concern qualification.
  9. Changes to the terms and condition of a unit — The issuer of a unit is required to immediately publicize any change in the terms of the unit. A change in the terms of the unit includes changes to the terms and conditions of any of the components (including changes to any original issue discount or other significant tax attributes of a component), or to the ratio of the components within the unit.  Public notification should be made as soon as practicable in relation to the effective date of the change, and should, at a minimum, include release of an announcement to the national and business financial news-wire services.  The issuer must provide information regarding the change in the terms and conditions of the unit and the ratio of the components comprising the unit on its website or include a description in its annual report if the issuer does not maintain a website.
  10. Receipt of written notice of noncompliance with a continued listing requirement — A company is required to publicly disclose that it has received a written notice indicating NYSE MKT staff has determined that the company is noncompliant and/or has failed to satisfy one or more continued listing requirements.

 

The following is a summary of NYSE MKT’s requirements for public announcements. Each press release or other public announcement should:

  • be factual, clear, and succinct;
  • contain sufficient quantitative information to allow investors to evaluate its relative importance to the activities of the company;
  • be balanced and fair by including unfavorable facts, accurately qualifying possibilities as certain, not creating positive spin on negative facts, and avoiding promotional jargon;
  • avoid over technical language, and should be expressed to the extent possible in language comprehensible to the layman;
  • explain, if the consequences or effects of the information on the company’s future prospects cannot be assessed, why this is so; and
  • clarify and point out any reasonable alternatives where the public announcement undertakes to interpret information disclosed.

 

The requirements of the federal securities laws must also be carefully considered in the preparation of public announcements.

Typical Examples.  The following events are particularly likely to require prompt announcements: a joint venture, merger or acquisition; the declaration or omission of dividends or the determination of earnings; a stock split or stock dividend; the acquisition or loss of a significant contract; a significant new product or discovery; a change in control or a significant change in management; a call of securities for redemption; the borrowing of a significant amount of funds; the public or private sale of a significant amount of additional securities; significant litigation; the purchase or sale of a significant asset; a significant change in capital investment plans; a significant labor dispute or dispute with subcontractors or suppliers; an event requiring the filing of a current report under the Exchange Act; establishment of a program to make purchases of the company’s own shares; a tender offer for another company’s securities; an event of technical default or default on interest and/or principal payments; and board changes and vacancies.

Code of Ethics and Related Matters

All NYSE MKT listed companies are required to adopt a code of conduct and ethics, applicable to all directors, officers and employees that meets the definition of a “code of ethics” under Sarbanes-Oxley.  Any waivers of the code of conduct for directors and executive officers must be approved by the company’s board of directors, and disclosed within four business days on Form 8-K.

VI.       CONCLUSION

This blog post provides a very general overview of the listing requirements and procedures related to an initial listing on NYSE MKT.  It is not intended as a definitive statement on the subject.  Should you have any questions concerning the foregoing, please do not hesitate to call Gilbert Bradshaw at 917-830-6517.

Table 1

NYSE MKT Quantitative Listing Criteria
 Standard OneStandard TwoStandard ThreeStandard Four
Shareholders’ equity$4 million$4 million$4 million
Pre-tax income$750,000 in last fiscal year or in two of the last three fiscal years
Price per share$3$3$2$3
Market value public float$3 million$15 million$15 million$20 million
Total market capitalization$50 million$75 million
OR
total assets and revenue of $75 million each (in most recent fiscal year or 2 of last 3 fiscal years)
Operating history2 years
Distribution800 public shareholders and 500,000 shares publicly held
OR
400 public shareholders and 1 million shares publicly held
OR
400 public shareholders, 500,000 shares publicly held, and average daily trading volume of 2,000 shares for previous 6 months

Public shareholders and public float do not include shareholders or shares held directly or indirectly by any officer, director, controlling shareholder, or other concentrated (10 percent or greater), affiliated or family holdings.

Table 2

Number of SharesInitial Listing FeesAnnual Listing Fees
Less than 5 million$50,000$27,500
5 to 10 million$55,000$27,500
10+ to 15 million$60,000$27,500
15+ to 50 million$70,000$27,500
50+ to 75 million$70,000$36,500
75 million +$70,000$40,000

 

 

[1] This blog post does not address maintenance standards for continued listing of a company’s securities on NYSE MKT.

[2] “Public float” is defined as the outstanding shares, exclusive of the holdings of officers, directors, controlling shareholders, other concentrated (i.e., 10% or greater shareholders), affiliated or family holdings.

[3] Public shareholders do not include shareholders that are officers, directors, controlling shareholders or other concentrated (i.e., 10% or greater) shareholders, or other shareholders who are affiliated with these persons or their family members.

[4] Due to inconsistencies in the NYSE MKT Company Guide and website, we verbally confirmed with NYSE MKT staff that the $5,000 one-time, non-refundable charge for original listing applications no longer applies.

[5] If a company requires a minimum quorum of less than one-third of the outstanding shares of common stock, NYSE MKT should be consulted before filing the original listing application.

[6] Note that in certain cases, this may require amendments to the issuer’s constating documents and may require shareholder approval.

[7] Issuers that qualify as “smaller reporting companies” under the SEC rules are subject to all the requirements regarding independent directors and audit committee, except that they are only required to have a board of directors comprised of at least 50% independent directors and an audit committee of at least two independent directors.  A “smaller reporting company” means an issuer that is not an investment company, an asset-backed issuer, or a majority-owned subsidiary of a parent that is not a smaller reporting company and that:

(i) Had a public float of less than $75 million as of the last business day of its most recently completed second fiscal quarter, computed by multiplying the aggregate worldwide number of shares of its voting and non-voting common equity held by non-affiliates by the price at which the common equity was last sold, or the average of the bid and asked prices of common equity, in the principal market for the common equity; or

(ii) In the case of an initial registration statement under the Securities Act of 1933, as amended (the “Securities Act“), or the Exchange Act for shares of its common equity, had a public float of less than $75 million as of a date within 30 days of the date of the filing of the registration statement, computed by multiplying the aggregate worldwide number of such shares held by non-affiliates before the registration plus, in the case of a Securities Act registration statement, the number of such shares included in the registration statement by the estimated public offering price of the shares; or

(iii) In the case of an issuer whose public float as calculated under paragraph (i) or (ii) of this definition was zero, had annual revenues of less than $50 million during the most recently completed fiscal year for which audited financial statements are available.

Once an issuer fails to qualify for smaller reporting company status, it will remain unqualified unless it determines that its public float was less than $50 million as of the last business day of its second fiscal quarter or, if that calculation results in zero because the issuer had no public equity outstanding or no market price for its equity existed, if the issuer had annual revenues of less than $40 million during its previous fiscal year.

[8] This provision does not apply to a “Controlled Company.”  A Controlled Company is a company in which over 50% of the voting power is held by an individual, a group, or another company.  A Controlled Company relying upon this exception must disclose in its annual meeting proxy statement (or, if the issuer does not file an annual proxy statement, in its next annual report on Form 10-K, that it is a Controlled Company and the basis for that determination.  To determine whether a group exists for purposes of this exception, the shareholders must have publicly filed a notice that they are acting as a group (e.g., a Schedule 13D).

[9] “Family Member” includes a person’s spouse, parents, children, siblings, mother-in-law, father-in-law, brother-in-law, sister-in-law, son-in-law, daughter-in-law, and anyone who resides in such person’s home.

[10] Rule 10A-3 provides that a member of the audit committee is not independent if he or she accepts any consulting, advisory or other compensatory fee from the issuer (or any subsidiary) other than director or committee fees (including equity-based fees for director services).  This proscription extends to indirect payments made to spouses and family members, as well as to payments for services to law firms, accounting firms, consulting firms and investment banks for which the director is a partner, member, managing director or executive.  There is no de minimis exception.  Ordinary course commercial business relationships between an issuer and an entity with which a director has a relationship generally will not affect independence under the rule.  In addition, the rules permit audit committee members to receive fixed amounts under a retirement plan (including deferred compensation) for prior service.  Under Rule 10A-3, a member of the audit committee also is not independent if he or she is an “affiliated person” of the listed company or any subsidiary.  A person is an “affiliated person” under the rule if he or she, directly or indirectly, controls, is controlled by or is under common control with the issuer under a traditional securities law analysis.  The rule provides a “safe harbor” under which a person who is not an executive officer or beneficial owner of more than 10% of a class of voting equity securities of the issuer is deemed not to control the issuer.  A director that does not meet the safe harbor is not presumed to be an affiliate, however, and a determination of independence will be based on the particular facts and circumstances.  The rule specifies that an executive officer, employee-director, general partner or managing member of any affiliate of the listed company will also be deemed to be an affiliate of that company.  The rule makes an exception to this criterion for an audit committee member who sits on the board of directors of both a listed company and its affiliate, if the committee member otherwise meets the independence requirements.

[11] Notwithstanding the independence requirements, an NYSE MKT listed company may have one director on the audit committee that does not meet the independent director definition of NYSE MKT under very limited circumstances if (a) such person satisfies the criteria under Rule 10A-3 and is not otherwise a current officer or employee or Family Member of such person and (b) the board of directors determines that membership of such person on the audit committee is in the best interest of the issuer and its shareholders and the issuer discloses the nature of the relationship and the reasons for that determination in its next annual meeting proxy statement (or, if the issuer does not file an annual proxy statement, in its annual report on Form 10-K.  Such person may not serve in excess of two consecutive years and may not chair the audit committee.

[12] Copies of proxy statements, forms of proxy and other soliciting materials distributed to shareholders, as well as copies of the notice of shareholders’ meetings and annual reports distributed to shareholders, must be filed with NYSE MKT if they are not filed electronically with the SEC.

[13] If the compensation committee was comprised of at least three members, one director, who is not independent and is not a current officer or employee or a Family Member of such person, would be permitted to be appointed to the committee if the board, under exceptional and limited circumstances, determines that such individual’s membership on the committee is required by the best interests of the company and its shareholders, and the board discloses, in the next annual meeting proxy statement subsequent to such determination (or, if the issuer does not file an annual proxy statement, in its annual report on Form 10-K, the nature of the relationship and the reasons for the determination. A member appointed under such exception would not be permitted to serve longer than two years.

[14] If the nominating committee was comprised of at least three members, one director, who is not independent and is not a current officer or employee or a Family Member of such person, would be permitted to be appointed to the committee if the board, under exceptional and limited circumstances, determines that such individual’s membership on the committee is required by the best interests of the company and its shareholders, and the board discloses, in the next annual meeting proxy statement subsequent to such determination (or, if the issuer does not file an annual proxy statement, in its annual report on Form 10-K, the nature of the relationship and the reasons for the determination. A member appointed under such exception would not be permitted to serve longer than two years.

[15] E.g., where immediate disclosure would prejudice the ability of the company to pursue its corporate objectives (such as a plan to acquire certain real estate), or where the facts are in a state of flux and a more appropriate moment for disclosure is imminent (such as some stages of a negotiation for the acquisition of another company).  In such limited and infrequent circumstances, the company may withhold material information, but must maintain strict confidentiality.

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