NASDAQ’s Continued Listing Requirements for Foreign Private Issuers

Listing a security on a Stock Exchange is an important milestone for any successful company. It is a long and challenging process in which a lot of decision-making, risk-taking and pondering take place. However, the challenge is not settled once a company is publicly trading. The real challenge is to comply with the continuous requirements that, by regulation, a company must meet to remain public permanently. This week, we analyzed the main conditions and requirements that Foreign Private Issuers (non-US companies) must meet to keep trading, month after month, on The NASDAQ Stock Market. For analysis purposes, it is worth mentioning that The NASDAQ Stock Exchange has three different markets in which a company can go public: 

• NASDAQ Global Select Market 
• NASDAQ Global Market Companies 
• NASDAQ Capital Market Companies

Having said this, the current analysis is structured as follows. Firstly, we will define the Financial and Liquidity standards that continued listings must comply with. Secondly, we will go through the main Corporate Governance metrics that companies must fulfill to keep trading publicly. Finally, we will enlist the Periodic Reporting standards that enterprises must issue to the public, to comply with the Securities and Exchanges Commission’s (SEC) rules. 

NASDAQ – Financial and Liquidity requirements 

Companies listed on the NASDAQ Global Select Market and on the NASDAQ Global Market, must comply with at least one of the following three standards:

Equity Standard (must meet all the following requirements): 

• Stockholders’ equity of at least $10 million dollars. 
• At least 750,000 publicly held shares. 
• Publicly held shares with a market value of at least $5 million dollars. 
• At least two market makers. 
• Minimum bid price of at least $1 dollar per share. 

• At least 400 total shareholders. 

Market Value Standard (must meet all the following requirements): 

• Listed securities with a market value of at least $50 million dollars. 
• At least 1.1 million publicly held shares. 

• Publicly held shares with a market value of at least $15 million dollars. 
• At least four market makers. 
• Minimum bid price of at least $1 dollar per share. 
• At least 400 total shareholders. 

Total Assets / Total Revenue Standard (must meet all the following requirements): 

• Total assets and total revenue of at least $50 million dollars each, in latest fiscal year or in two of last three fiscal years. 
• At least 1.1 million publicly held shares. 
• Publicly held shares with a market value of at least $15 million dollars. 
• At least four market makers. 

• Minimum bid price of at least $1 dollar per share. 
• At least 400 total shareholders. 

Companies listed on the NASDAQ Capital Market, must comply with one of the following three standards: 

Equity Standard (must meet all the following requirements): 

• Stockholders’ equity of at least $2.5 million dollars. 
• At least 500,000 publicly held shares. 
• Publicly held shares with a market value of at least $1 million dollars. 
• At least two market makers. 

• Minimum bid price of at least $1 dollar per share. 
• At least 300 public holders. 

Market Value of listed securities Standard (must meet all the following requirements): 

• Market value of listed securities of at least $35 million dollars. 

• At least 500,000 publicly held shares. 
• Publicly held shares with a market value of at least $1 million dollars. 
• At least two market makers. 
• Minimum bid price of at least $1 dollar per share. 
• At least 300 public holders. 

Net Income Standard (must meet all the following requirements): 

• Net income from continuing operations of at least $500,000 dollars, in latest fiscal year or in two of last three fiscal years. 
• At least 500,000 publicly held shares. 
• Publicly held shares with a market value of at least $1 million dollars. 

• At least two market makers. 
• Minimum bid price of at least $1 dollar per share. 
• At least 300 public holders. 

NASDAQ – Corporate Governance requirements 

Moreover, a company listed on The NASDAQ Stock Market must comply with a wide set of corporate governance conditions. However, Foreign Private Issuers may follow the corporate governance practice from their home countries, and additionally, comply with the following: 

• Disclose publicly each requirement that it does not follow and describe the home country practice that it does follow. 
• Refrain from a disparate reduction or restriction of voting rights of common stockholders, subject to certain exceptions if not prohibited by home country law. 

• Provide a prompt notification if an executive officer of the company becomes aware of any noncompliance, by the company, of NASDAQ rules. 
• Must have an audit committee composed of at least three members who satisfy the independence requirements of SEC Rule 10A-3. Rule 10A-3 also set out additional responsibilities regarding IPOs, registered public accounting firms, procedures regarding complaints, engaging advisers and funding.   
• Meet certain diversity requirements for the board of directors, or explain reasons for not doing so, and make certain annual disclosures under the new NASDAQ Board Diversity Rule. 
• If a Foreign Private Issuer seeks to comply with home country practices instead of NASDAQ’s corporate governance requirements, it must submit to NASDAQ a written statement from independent counsel in the issuer’s home country certifying that the issuer’s practices are not prohibited by the home country’s laws. 

For additional information on corporate governance requirements, please refer to NASDAQ’s Continued Listing Guide. 

NASDAQ – Periodic Reporting 

As NASDAQ rules state, a company listed on The NASDAQ Stock Market is required to disclose any material information that could affect the value of its securities or modify investors’ decisions. In terms of periodic reporting, Foreign Private Issuers are permitted to follow their home countries’ practice. However, according to SEC law, these non-US companies must submit additional information to US regulators. These additional materials include: 

• Form 6-K: According to the SEC, this form states that 1) the FPI makes or is required to make public pursuant to the laws of the country of its incorporation or domicile; 2) the FPI files or is required to file with a stock exchange on which its securities are traded and which was made public by that exchange; 3) the FPI distributes or is required to distribute to its security holders.  
• Interim financial statements: As NASDAQ rules state, any Foreign Private Issuer is required to publicly disclose its interim balance sheet and income statement as of the end of its second quarter. Such information must be submitted in Form 6-K, mentioned above (this information does not have to be adapted to US GAAP). 
• Form 20-F: The NASDAQ Stock Exchange also requires FPI’s to file an annual report in Form 20-F, including audited financial reports, to the SEC. This form must be issued within four months after the end of the company’s fiscal year. The annual report must be available to all shareholders through the FPI’s website and must state that holders of stocks and bonds receive a copy of the company’s audited financial statements. The financial statements shown in this form may be prepared according to US GAAP, IFRS or to any accounting standard that comprise a comprehensive basis of accounting. However, if a Foreign Private Issuer’s financial reports are presented in a different accounting standard than US GAAP, the company must also provide a reconciliation to US GAAP. 

For additional information on periodic reporting details and further requirements, please refer to SEC’s Brief Overview for Foreign Private Issuers. 

For additional reporting information, due dates and a copy of Form 6-K, please refer to Example of Form 6-K. 

For additional reporting information, details and a copy of the Form 20-F, please refer to Example of Form 20-F. 

To conclude, Mexican public companies, with the objective of listing on The NASDAQ Stock Exchange, must disclose all public information (press releases, quarterly reports, audited financial statements, among others) in specific formats and on specific dates, to comply with SEC law. We know that this could be a long and arduous process, therefore, Miranda IR is more than happy to help you gather every document in its required form in order to adhere to US regulation and to provide you with the best counsel within the industry. 

Sources: 

• https://listingcenter.nasdaq.com/assets/continuedguide.pdf 
• https://listingcenter.nasdaq.com/assets/Foreign%20Issuers%20Listing%20on%20Nasdaq.pdf 

• https://listingcenter.nasdaq.com/rulebook/nasdaq/rules 
• https://resourcehub.bakermckenzie.com/en/resources/cross-border-listings-handbook/comparison?j=11945359-c7a1-4500-91f9-ea06baaac504&n=Cross-Border+Listings+Guide 
• https://www.sec.gov/divisions/corpfin/internatl/foreign-private-issuers-overview.shtml 
• https://www.sec.gov/rules/final/33-8220.htm#audit 
• https://www.sec.gov/files/form20-f.pdf 

• https://www.sec.gov/files/form6-k.pdf