News + Events
Higher Listing Standards for Reverse Merger Companies
August 11, 2011
Aurora Cassirer
Howard H. Jiang
Timothy I. Kahler
In response to a number of allegedly fraudulent filings by companies that went public through the reverse merger process, the New York Stock Exchange, NYSE Amex and the NASDAQ Stock Market will increase their listing standards for reverse merger companies.
A reverse merger company (RMC) results from a transaction in which a public shell company combines, by merger or other transaction, with a private operating company. After the transaction, the public shell company survives, but management authority and a majority of the outstanding shares are controlled by the former owners of the private operating company. These transactions permit operating businesses to access public equity markets faster and less expensively than through traditional avenues, such as IPOs.
Regulators have given more attention to RMCs in the past year, especially RMCs with businesses in China. Allegations of fraud, accounting irregularities and auditing lapses have increased the perception of risk in this market sector. We reported on certain related matters on March 28, 2011 and April 25, 2011.
In SEC filings this summer, the NYSE, NYSE Amex and Nasdaq proposed rules in which an RMC, for specified periods prior to filing its listing application, must (i) have a minimum share price, (ii) trade in the over-the-counter market or on another exchange, and (iii) timely file SEC reports. The table below summarizes the key parts of the proposed rules:
|
NYSE / NYSE Amex |
NASDAQ |
|
Minimum trading price |
$4.00 for NYSE; NYSE Amex rules provide alternative prices |
$4.00 bid price |
|
Period during which minimum trading price must be maintained |
At time of filing and on average during “a sustained period” |
30 of the most recent 60 trading days |
|
Period during which shares must trade on other market or exchange |
One year after filing initial merger information |
Six months after filing initial merger information |
|
Post-merger current reporting requirement |
All reports (10-Q and 10-K; must include at least one 10-K) for one year after filing initial merger information |
Two reports (10-Q or 10-K) with at least 6 months of post-merger information |
Under existing rules, the NYSE, the NYSE Amex and Nasdaq have broad discretion to conduct heightened reviews and impose additional requirements on listing applicants. Thus, pending SEC approval, companies may expect that these proposed rules will be given effect for all practical purposes. The proposed rules will not apply to listings for special purpose acquisition companies (SPACs).
For additional information, please contact
Aurora Cassirer,
Howard Jiang or
Timothy Kahler.