The SEC recently approved Nasdaq’s proposed changes to the initial listing requirements related to liquidity. Nasdaq proposed to change Listing Rules 5405 and 5505 to: 

• Require that a company listing on the Nasdaq Global Market or Nasdaq Capital Market in connection with an initial public offering (IPO) satisfy the applicable minimum Market Value of Unrestricted Publicly Held Shares (MVUPHS) requirements solely from the proceeds of the offering 
• Make similar changes affecting companies that uplist to Nasdaq Global Market or Nasdaq Capital Market from the U.S. over-the-counter market in conjunction with a public offering 

According to Nasdaq, it has observed that the companies that meet the applicable MVUPHS requirement through an IPO by including previously issued shares registered for resale and not held by affiliates (Resale Shares) have experienced higher volatility on the date of listing than those of similarly situated companies that meet the requirement with only the proceeds from the offering. As a result, Nasdaq believes it is appropriate to modify the rules to exclude the Resale Shares because these shares may not contribute to liquidity to the same degree as the shares sold in the IPO.  

This article is part of a Fenwick "Securities Law Update" authored by David A. Bell, Ran Ben-Tzur, Amanda Rose, Wendy Grasso, and Merritt Steele.