SEC Approves New Reverse Merger Listing Standards for the NYSE, NYSE Amex and NASDAQ Exchanges | Practical Law

SEC Approves New Reverse Merger Listing Standards for the NYSE, NYSE Amex and NASDAQ Exchanges | Practical Law

On November 9, 2011, the SEC approved rule changes for the NYSE, NYSE Amex and NASDAQ exchanges that impose additional listing requirements on companies completing a reverse merger with a shell company.

SEC Approves New Reverse Merger Listing Standards for the NYSE, NYSE Amex and NASDAQ Exchanges

by PLC Corporate & Securities
Published on 10 Nov 2011 • USA (National/Federal)
On November 9, 2011, the SEC approved rule changes for the NYSE, NYSE Amex and NASDAQ exchanges that impose additional listing requirements on companies completing a reverse merger with a shell company.
On November 9, 2011, the SEC issued orders approving rule changes for the NYSE, NYSE Amex and NASDAQ exchanges that impose additional listing requirements on companies completing a reverse merger with a shell company. Under the rules, a reverse merger company would be ineligible for listing unless the combined entity had, immediately before filing its initial listing application:
  • Traded for at least one year in the US over-the-counter market or another regulated US or foreign exchange following completion of the reverse merger.
  • Filed all required reports with the SEC, including audited financial statements.
  • Maintained a stock price of at least $4 for a sustained period, including at least 30 of the 60 trading days immediately before its listing application and the relevant exchange's decision to list.
A reverse merger company would be exempt from the new rules if:
  • It is listing in connection with a substantial firm commitment underwritten public offering.
  • The reverse merger occurred long enough beforehand that at least four annual reports with audited financial information have been filed with the SEC.
The purpose of the new rules is to address significant regulatory concerns, including recent accounting fraud allegations, facing reverse merger companies. The SEC's approval follows proposed rules by each of the exchanges, as detailed in Legal Updates, NASDAQ Proposes Revised Rule to Adopt Listing Requirements for Companies Going Public through a Reverse Merger and NYSE Proposes Additional Listing Requirements for Companies Going Public through Reverse Mergers. The exchanges subsequently amended their respective proposed rules to address material differences in the proposed rules, as detailed in Legal Update, SEC Seeks Public Comments on NASDAQ Reverse Merger Listing Proposals.
To learn more about reverse mergers, see Practice Note, Reverse Mergers: The IPO Alternative.