Proposed Rule Change to Adopt Listing Rule IM-5101-4

Summary

SIFMA provided comments to the U.S. Securities and Exchange Commission (SEC) in response to the proposal by The Nasdaq Stock Market LLC (Nasdaq) to adopt new IM-5101-4 to enumerate the factors it will consider when exercising discretion to delist a company from Nasdaq based on the potential for one or more third parties to engage in misconduct impacting a company’s securities where the Commission has implemented a temporary trading suspension. ¹

Excerpt

SIFMA supports the Proposal, which will enable Nasdaq to immediately begin the delisting process by issuing a Staff Delisting Determination to a company that is the subject of a trading suspension by the Commission and where Nasdaq, in its gatekeeping role as a national securities exchange, determines that the company may be susceptible to manipulation based on Nasdaq’s evaluation of the factors in the Proposal. A company that receives a Staff Delisting Determination under the new rule would have the opportunity to seek review of the staff’s determination by a Hearings Panel.

As noted in the Proposal, recently the Commission has suspended trading in more than a dozen stocks under Section 12(k) of the Securities Exchange Act of 1934 (“Exchange Act”). ² In general, the trading suspensions follow manipulative schemes operated by unknown persons, who make recommendations to investors via social media designed to artificially inflate the price and volume of the securities of the target company. These manipulative schemes have been detailed in the press. ³ The fraudulent schemes are conducted by unknown persons and there is no indication these individuals have any connection with the company.

SIFMA supports Nasdaq’s Proposal to include in its rules the factors it will consider when initiating delisting proceedings for companies with stocks the Commission has suspended under Exchange Act Section 12(k). In addition, Nasdaq should provide as much information as possible to investors when it exercises its authority pursuant to this rule. Lengthy, indefinite trading suspensions, with no clear deadline for resolution, can compound the negative impacts for investors who own these stocks with no way to sell and no timeline for liquidating their positions. There are also several negative downstream impacts for investors forced to hold positions in these suspended stocks for prolonged periods, including the ongoing cost of carrying the positions and the inability to allocate that locked-up capital to new investments.