NASDAQ LISTINGS

NASDAQ LISTINGS

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NASDAQ LISTINGS


Market Overview

Due to its comparatively large market size and degree of sophistication, the US capital market has been for decades a preferable choice for corporations seeking capital through public listing. Amongst the top five global largest stock exchanges, the total market capitalization value of the New York Stock Exchange (ranked first) and the NASDAQ Stock Exchange (ranked second) as of June 2021 amounte to USD25.3 trillion and USD22.1 trillion respectively, which is three times the size that of the third global largest stock exchange, namely, the Shanghai Stock Exchange with a total market capitalization value amounts to USD7.6 trillion as of June 2021. Coming up fourth place is the Hong Kong Stock Exchange, with a total market capitalization value of USD6.8 trillion.

 

Going public in the United States skyrocketed in 2021 with over 1,000 companies listed on  the American stock markets. Of which, 275 companies received USD100 million plus through traditional IPO. The boom of SPACs in 2020 continued into the first quarter of 2021, however, it began to slow down significantly in the second quarter due to market forces and stricter scrutiny by the US Security Exchange Commission (SEC). In so far as PRC companies are concerned, a total number of 40 PRC companies (excluding SPACs and OTCs) listed on the US markets in 2021, of which 27 companies listed on NASDAQ and 13 listed on New York Stock Exchange. The total capital raised by these 40 companies amounted to  USD14.16 billion (19 companies raised USD10-50 million, 10 companies raised between USD100-500 million, 4 companies raised between USD50 million to 100 million, and 3 companies raised between USD500 million to 1 billion. The average market capitalization of these 40 companies is USD1.977 billion).

 

Brief Introduction of NASDAQ Exchange

 

NASDAQ, the abbreviation of National Association of Securities Dealers Automated Quotations, is an electronic securities trading agency in the United States owned and operated by NASDAQ Stock Market Corporation. The NASDAQ market is divided into 3 different tiers, namely: the NASDAQ Global Select Market; the NASDAQ Global Market; and the NASDAQ Capital Market. The financial standard and liquidity standards of these three tiers are different, but the corporate governance standards are the same.

 

There are a number of advantages on listing on NASDAQ which include, inter alia:

 

lIt provides a series of value-added services for listed companies, including the convenience of follow-up financing;

lNo time limit for follow-up financing in which the second financing can be done as soon as six months after IPO;

lIt may strengthen the company’s merger and acquisition capabilities as its stocks can often be accepted by buyers as a means of payment;


lIt provides easier entry for small and medium sized enterprises.



Listing Requirements

 

The listing requirements of each of the three 3 market tiers are as follows:

NASDAQ Global Select Market


Financial standards: Companies must meet all the criteria under at least one of the four financial standards below.

 

Financial Requirements

Standard: 1 Earnings

 

Standard 2: Capitalization with Cash Flow

 

Standard 3: Capitalization with Revenue

 

Standard 4: Assets with Equity

 

 

Pre-Tax Earnings (Income from continuing operations before income taxes)

 

Aggregate in prior three fiscal years US$11M and each of the prior three fiscal years 0; and each of the two most recent fiscal years 

US$ 2.2M

 

 

 

-

 

 

 

-

 

 

 

-

 

 

Cash Flows

 

 

-

Aggregate in prior three fiscal years US$27.5M, and each of the prior three

fiscal years 0

 

 

-

 

 

-

 

Market Capitalization

 

-

Average

US$550M over prior 12 months

Average

US$850M over prior 12 months

 

US$160M

 

Revenue

 

-

Previous fiscal year

$ 110 million

Previous fiscal year

$ 90 million

 

-

 

Total Assets

 

-

 

-

 

-

 

US$80M

StockholdersEquity

 

-

 

-

 

-

 

US$55M

 

Bid Price

 

$ 4

 

$ 4

 

$ 4

 

$ 4





NASDAQ Global Select Market


Liquidity standard: Companies must meet all the criteria applicable liquidity requirements as below.

 

Liquidity Requirements

 

IPO and Spin-Off Companies

 

Seasoned Companies: Currently Trading Common Stock or Equivalents

 

Affiliated Companies

 

 

 

Unrestricted Round Lot Shareholders Or Total Shareholders Or

Total Shareholders and Average Monthly Trading Volume over Past Twelve Months

 

 

 

 

 

450

Or 2,200

 

 

 

 

450

Or 2,200

Or

550 and 1.1 million

 

 

 

 

450

Or 2,200

Or

550 and 1.1 million

Unrestricted Publicly Held Shares

 

1,250,000

 

1,250,000

 

1,250,000

Market Value of


 

 

 

 

US$110M

Or   US$100M

And US$110M


Unrestricted



Publicly Held



Shares



Or



Marker Value of

US$45M

US$45M

Unrestricted



Publicly Held



Shares and



Stockholders



Equity



 

 

Market maker

Must have four market makers. But if the company meets the income standard or

equity standard of theNASDAQ Global Select Market Listing Conditions', it can be 3 market makers.


NASDAQ Global Market


Financial and Liquidity standards: Companies must meet all the criteria under at least one of the four standards below.

 

 

Requirements

 

Income Standard

 

Equity Standard

 

Market Value Standard

Total Assets/ Total Revenue Standard

Income from continuing operations before income taxes (In latest fiscal year or in two

of last three fiscal years)

 

 

US$1M

 

 

-

 

 

-

 

 

-

 

Shareholders' Equity

US$15 M

US$30 M

 

-

 

-

Market Value of Listed Securities

 

-

 

-

 

US$75M

 

-

Total Assets and Total Revenue

(In latest fiscal year or in two of last three fiscal years)

 

-

 

-

 

-

US$75M

And US$75M

Unrestricted Publicly Held Shares

 

1.1million

 

1.1million

 

1.1million

 

1.1million

Market Value of Unrestricted Publicly Held Shares

 

US$8M

 

US$18M

 

US$20M

 

US$20M

Bid Price

US$4

US$4

US$4

US$4

Unrestricted Round Lot Shareholders

 

400

 

400

 

400

 

400

 

Market Makers

 

3

 

3

 

4

 

4

 

Operation History

 

-

 

2 years

 

-

 

-


NASDAQ Global Market



Financial and Liquidity standards: Companies must meet all the criteria under at least one of the three standards below.

 

Requirements

 

Equity Standard

Market Value Standard of Listed Securities Standard

 

Net Income Standard

Stockholders' Equity

 

US$5M

 

US$4M

 

US$4M

Market Value of Unrestricted Publicly Held Shares

 

US$15M

 

US$15M

 

US$5M

Operation History

2 years

-

-

 

Market Value of Listed Securities

 

-

 

US$50M

 

-

Net Income from Continuing Operations

(In the latest fiscal year or in two of the last three fiscal

years)

 

 

-

 

 

-

 

 

US$750,000

Unrestricted Publicly Held Shares

 

1 million

 

1 million

 

1 million

Unrestricted Round Lot Shareholders

 

300

 

300

 

300

Market Makers

3

3

3

 

Bid Price Or Closing Price

 

$ 4 or $ 3

 

$ 4 or $ 2

 

$ 4 or $ 3

 

Alternative requirements for closing prices

To qualify under the closing price alternative, a company must have:

(1) average annual revenues of US$6M for three years, or (2) net tangible assets of US$5M, or (3) net tangible assets of US$2M and a 3 year operating history.

 

Corporate Governance Requirements*

 

The corporate governance requirements are set out in the Listing Rules 5600 series, in summary these requirements include:

 

(1) BOARD OF DIRECTORS AND COMMITTEES

 

l The company’s board of directors is required to have a majority of independent directors;

l The company must have an audit committee consisting solely of independent directors who also satisfy the requirements of SEC Rule 10A-3 (on audit


committee’s responsibilities and authority), and who can read and understand fundamental financial statements. The committee must have at least three members, in which one member must have experience that results in the individual’s financial sophistication;

l The company is required to have a compensation committee comprising solely of independent directors and have at least two members. Rule 5605(d)(2)(A) include an additional independence test for committee members (the relationship of the director with the company which is material to that director’s ability to be independent from management in connection with the duties of a compensation member). The compensation committee must determine, or recommend to the full board for determination, the compensation of the CEO and all other executive officers;

l Independent directors must select or recommend nominees for directors.

 

(2) CODE OF CONDUCT

 

l The company must adopt a code of conduct applicable to all directors, officers and employees;

l The company must conduct appropriate review and oversight of all related party transactions for potential conflict of interest situations.

 

(3) ANNUAL MEETINGS

 

l The company must hold an annual meeting of shareholders no later than one year after the end of its fiscal year;

l The company is required to solicit proxies for all shareholder meetings;

l The company must provide for a quorum of not less than 33 1/3% of the outstanding shares of it voting stock for any meeting of the holders of its common stock;

l The company is required to obtain shareholder approval of certain issuance of securities including:

- acquisitions where the issuance equals 20% or more of the pre-transaction outstanding shares, or 5% or more of the pre-transaction outstanding shares  when a related party has a 5% or greater interest in the acquisition target

- issuances resulting in a change of control

- equity compensation

- private placements where the issuance equals 20% or more of the pre-transaction outstanding shares at a price less than the greater of book or market value

 

(4) OTHER GOVERNANCE REQUIREMENTS

 

l Corporate actions or issuances cannot disparately reduce or restrict the existing rights of existing shareholders;

l The company must make its annual and interim reports available to shareholders, either by mail or electronically through the company’s website.


*Please note that in addition to the above-mentioned governance requirements mandated by the Listing Rules, there are other requirements imposed by securities related laws and regulations of the United States. Please contact us should you need to explore these statutory requirements further.

 

Issues Specific to PRC Based Issuers

 

(A) Holding Foreign Companies Accountable Act (HFCA Act)

 

The amendments under the HFCA Act, which becomes effective as of 10 January 2022 has had a significant impact on Chinese companies to be listed or already listed on US Stock Exchanges. In summary, the new amendments target issuers whose auditors are not subject to PCAOB (Public Company Accounting Oversight Board) inspection. The new amendments under the HFCA Act relate to Section 104 of the Sarbanes-Oxley Act of 2002 (the “SOX”) which mandates the SEC to identify each “covered issuer” that has retained a registered public accounting firm to issue an audit report where such registered public accounting firm has a branch or office that is located in a foreign jurisdiction; and that the PCAOB has determined that it is unable to inspect or investigate completely because of a position taken by an authority in the foreign jurisdiction (more specifically China). The SEC will impose an initial trading prohibition on a registrant as soon as practicable after it is conclusively identified as a Commission-Identified-Issuer for three consecutive years. If such issuer is again determined by the SEC as a Commission-Identified-Issuer, the SEC will impose a subsequent trading prohibition for a minimum of five years.

 

A Commission-identified-Issuer is required to disclose in its annual report:

 

l The PCAOB-Identified Firm that caused the issuer to be identified as a Commissioner-Identified-Issuer during the period covered by the filing form, i.e., Form 8-K or 6-K (as applicable);

l The percentage of the issuer’s shares owned by governmental entities in the foreign jurisdiction in which the issuer is incorporated or otherwise organized;

l Whether governmental entities in the foreign jurisdiction where that registered public accounting firm is located have a financial interest in the issuer;

l The name of each official of the Chinese Communist Party (CCP) who is a member of the board of directors of the issuer or the operating entity with respect to the issuer;

l Whether the articles of incorporation of the issuer (or equivalent organizing document) contains any charter of the CCP, including the text of any such charter.

 

(B) Disclosure Considerations for PRC-Based Issuers

 

When preparing the registration statement and the prospectus, PRC issuers should consider disclosing the following issues/risks particular to issuers based in the PRC, the


issues to be disclosed are:

 

l Disclosure on the limitations of PCAOB to inspect the audit work of its outside audit firms in China and Hong Kong, in particular, the difficulty regulators such as the SEC and PCAOB may have in obtaining audit work papers etc.;

l Disclosure on the limits imposed by Chinese laws on the ability of US authorities, including the SEC, PCAOB, the Department of Justice, to conduct investigations and brings actions, including Article 177 of the Securities Law of China which prohibits oversea securities regulator to conduct investigations or evidence collection activities within the PRC, and that no entity or individual in China may provide documents and information relating to securities business activities to oversea regulators without Chinese government approval;

l Disclosure on the risks in relation to VIE structure such as, uncertainty about the legality of VIE structure under Chinese laws; the VIE structure may not be as effective as direct ownership in controlling entities organized in China; control over, and funds due from, the VIE may be jeopardized if the natural person or persons that hold the equity interest in the VIE breach the terms of the agreement etc.;

l Disclosure on the risks relating to the regulatory environment in China, including risks related to a less developed legal system, which may result in inconsistent and unpredictable interpretation and enforcement of laws and regulations*.

 

* More specifically address in the CF Disclosure Guidance (Disclosure Considerations for China-Based Issuers) published on 23 November 2020 by the Division of Corporate Finance of the SEC.

 

The above issues are typically included in the SEC’s comments in the event that disclosure of these issues is omitted from the registration statement and prospectus on their initial filings. Therefore, in order to avoid unnecessary delay due to SEC’s comments on these issues, PRC lawyers acting for the issuer are advised to address the above issues on their legal opinion, and to disclose the same in the registration statement and the prospectus upfront.

 

In addition, it is envisaged that the issuers shall be required to address and disclose as to whether the recently promulgated Cyber Security Law, the Data Protection Law and the Personal Information Protection Law shall be applicable to the issuers (particularly those whose businesses involve data collection and usage) and the risks for non compliance.

 

Matters Mandated by the PRC Government

 

(A) REVIEW UNDER THE CYBERSECURITY LAW OF CHINA

 

Pursuant to the newly promulgated Measures on Cyber Security Review (effective as at 15 February 2022), oversea listing (including Hong Kong SAR) for China-Based issuers whose businesses involve personal data collection and usage, and having more than 1


million users on their data bases are required to disclose relevant particulars as regards the cyber security and personal information protection compliance system to the Office for Cyber Security Review (the “Office”) for review.

 

The Office for Cyber Security Review will confirm, within 10 working days upon receipt of the information from the intended issuer, as to whether such intended issuer will be subject to cyber security review. In the event that the Office determines that the issuer shall be subject to security review, a preliminary review by the Office shall conduct and complete within 30 working days from the date of issuing a written notice informing the intended issuer that a preliminary review shall be conducted (which may be extended for further 15 days if the case involved is complicated). The conclusion and recommendation of such review shall then be forwarded to relevant government units and departments for their respective opinions. The relevant government units and departments shall provide their respective opinions within 15 working days from the date of receipt of the conclusion and recommendation from the Office. In the event that there are differing opinions amongst the relevant units and departments, a special review shall have to be conducted. The special review should be completed within 90 working days, but could be extended if the case involved is complicated. Please note that the above time length does not include any additional time incurred if supplementary information are required by the reviewing authorities.

 

Issuers are therefore advised to commence the declaration process at least 3 months prior to the intended date of first filing of their registration statement.

 

(B) REGULATIONS CONCERNING THE MANAGEMENT OF CHINESE COMPANIES ISSUING SECURITEIS AND PUBLIC LISTING ABOARD

 

Pursuant to the above-mentioned Regulations (promulgated by the State Council on 24 December 2021), and the “Measures on Reporting Management for Chinese Companies Issuing Securities and Listing Aboard” (currently at consultative stage), issuers of securities or public listing aboard are required to report to the China Securities Regulatory Commission (CSRC) for record purposes within 3 working days from their first filing of registration statements to the relevant oversea authorities. The following documents shall have to be submitted for record purpose at the time of reporting:

 

- Report for record purpose and relevant undertakings;

- Opinion, report for record purpose, approval issued by relevant government authorities regulating the specific business of the issuers in question (if applicable);

- Report of security review issued by relevant authorities (if applicable);

- Chinese legal opinion;

- Prospectus related to the issuance of securities or public listing.

 

As mentioned above, the Measures are currently at consultative stage. Accordingly,


please contact us for updated information once the Measures become final and effective.

 

Our Joint IPO Advisory Services

 

- Conducting due diligence review on business, accounting and tax etc.

- Assisting you in formulating medium to long term development and business plan

- Assisting you in reorganization plan

- Formulating an IPO implementation plan and set milestone dates

- Selecting similar companies previously listed for comparative studies and analysis

- Assisting you in the preparation of proper accounting records ready for IPO audit

- Assisting you in formulating proper corporate governance and compliance policies

- Assisting you in the selection of foreign law firms, audit firms, underwriters and independent professional firms

- Assisting you in finalizing audited accounts

- Assisting you in the preparation of registration statement and prospectus

- Arranging the issuance of comfort letter by auditors to the relevant Exchange prior to signing off IPO application

- Coordinating with the relevant Exchange on the timing of registration statement becoming effective & others

- Working with professional firms to answer comments by authorities regarding registration statement and prospectus

- Assisting you in seeking cornerstone /other investors and in road shows

 

Our law firm could act on your behalf as PRC counsel in relation to the listing application. Our services include:

 

- Advising and assisting you in formulating an offshore structure for oversea listing

- Advising and assisting you on matters relating to cyber security review (if necessary)

- Conducting due diligence review on your company and issuing a Chinese legal opinion on our findings for the purpose of listing

- Assisting you in answering comments by authorities on legal matters relating to the listing

- Assisting you in the filing for record purpose with the CSRC

 


NASDAQ LISTINGS