Blue Sky Compliance

Generally, the offering and sale of securities must comply with registration requirements or qualify for an exemption under the Federal Securities Act of 1933 ("Securities Act") and state securities laws. Due to the lack of consistency among state securities laws and the challenges they posed to capital-raising transactions, the National Securities Markets Improvement Act of 1996 ("NSMIA") was enacted into law on October 11, 1996.

The National Securities Markets Improvement Act of 1996 (NSMIA) brought significant changes by amending Section 18 of the Securities Act. This amendment aimed to preempt the state-level "blue sky" registration and review process for certain securities and offerings. Securities that fall under this preemption are referred to as "covered securities."

In addition, the NSMIA made amendments to Section 15 of the Exchange Act, which resulted in the preemption of state authority over various aspects related to brokers and dealers. This includes matters such as capital, custody, margin, financial responsibility, record-keeping, bonding, and financial or operational reporting requirements for brokers and dealers. The goal was to streamline and harmonize regulations at the federal level, reducing the burden of complying with a patchwork of state regulations for certain securities and broker-dealer activities.

When the National Securities Markets Improvement Act of 1996 (NSMIA) was enacted, the legislature intentionally did not provide an exhaustive list of specific securities subject to dual regulation by both states and the federal government. Instead, the NSMIA introduced the concept of "covered securities" that would be exempt from state-level registration and review.

However, the NSMIA did not include certain securities in its list of "covered securities," and examples of securities expressly excluded from the preemption provisions include:

Securities Traded on the Over-the-Counter (OTC) Market: Securities traded on the OTC market are not covered by the NSMIA preemption.
Registered Direct Public Offerings: Securities issued through registered direct public offerings are not treated as covered securities under the NSMIA.
Securities Issued in Rule 504 Offerings: Securities issued in offerings conducted under Rule 504 of Regulation D, which provides a limited exemption for certain small offerings, are not covered securities.

These exclusions mean that these specific types of securities remain subject to state-level regulation, and issuers must comply with the securities laws of the states in which they intend to offer and sell these securities. The NSMIA's intent was to strike a balance between federal and state regulatory authority while providing more consistency and efficiency in the regulation of securities offerings.

An Overview Of Blue Sky Laws

Securities issued in transactions that do not qualify as "covered securities" under the National Securities Markets Improvement Act of 1996 (NSMIA) must comply with state blue sky laws. Examples of transactions not covered by NSMIA include Regulation D Rule 504 offerings, intra-state offerings, and registered direct or initial public offerings.

Furthermore, even after the initial issuance, when these securities are subject to resale or secondary trading, they may still be subject to state blue sky laws. This means that individuals looking to resell or trade these securities must either rely on preemption provisions or comply with the specific blue sky laws of the states in which they intend to conduct secondary transactions.

In summary, securities issued in certain offerings that do not qualify as covered securities under NSMIA, as well as their subsequent resale or secondary trading, are subject to state blue sky laws. This underscores the importance of understanding and complying with both federal and state securities regulations to ensure legal and compliant transactions in the securities market.

State securities laws, often referred to as "blue sky laws," indeed require the registration or qualification of securities offerings, unless they fall under an available exemption. Each state has its own set of securities laws, and there are 54 U.S. jurisdictions, including all 50 states and four territories, each with different regulations.

While many states have adopted the Uniform Securities Act of 1956 (the "Uniform Act") or variations of it, state blue sky laws still exhibit significant differences. Even in states with similar statutes, interpretations, and enforcement priorities can vary significantly. Some key areas of divergence among states include:

Notice and Filing Requirements: States may have different requirements regarding the amount of fees, paperwork, questions asked, and the time needed for the review and approval of registrations.
Standards of Merit Review: States may differ in their standards of merit review, leading to varying comments and focuses on the same issuer.
Length of Comment Periods: The time taken for the review process can vary from days in some states to weeks or months in others.
Suitability Standards: States may have different suitability standards for certain securities offerings.
Notice Requirements for Exempt Offerings: Even under the Uniform Limited Offering Exemption, states may impose different notice requirements for exempt offerings.
Required Legends on Offering Materials: States may require specific legends on offering materials.
Disclosure Requirements: Disclosure requirements can vary, with some states requiring issuers to include different disclosure items or alter the language in certain phrases.
Required Forms: In addition to the standard Form D in exempt offerings, some states may require additional forms.
Treatment of Offerings of Asset-Backed Securities: States may have specific regulations for offerings of asset-backed securities.
Financial Statement Requirements: Some states may mandate audited financial statements, while others may not.

Most states offer some form of limited offering exemption based on factors such as the number of offerees or purchasers, the dollar amount of the offering, or a combination of these limitations. Common exemptions include private offering exemptions, often similar to federal Section 4(a)(2), exemptions for offerings limited to accredited investors, and exemptions similar to the NASAA's Uniform Limited Offering Exemption, akin to the federal Rule 506(b) exemption. Understanding and navigating these variations are essential for issuers and participants in the securities market to ensure compliance with state blue sky laws.

What Is The State Merit Review?

In over 40 states, a merit review approach is applied to state-registered offerings. Merit review involves a substantive evaluation of the issuer and the offering to ensure fairness and prevent fraudulent or inequitable offerings. Common topics considered during merit review include:

Discounted Stock Sales: Evaluation of sales, especially to insiders and promoters, conducted near the offering at significantly discounted prices.
Affiliate Transactions: Scrutiny of transactions with affiliates, including loans, which often need to be repaid before the offering and conducted on arm's length terms.
Debt Offerings: Assessment of debt offerings to ensure sufficient cash flows to cover servicing charges and payments. States may also require the establishment of a sinking fund or a trust indenture meeting specific requirements.
Impoundment of Offering Proceeds: Some states may require that the issuer agrees to impound offering proceeds.
Options and Warrants: States may request limits on the number of outstanding options or warrants and may dictate terms of exercisability. Limits may also be set on compensatory underwriter issuances.
Preferred Stock: Requirements for current and past net income to cover dividends or other obligations. If preferred stock is offered, redemption provisions and other investor-friendly rights may be mandated.
Promoter's Equity Investment: Some states may require a promoter's equity interest to be more than 10% of the post-offering equity, ensuring that the promoter is an affiliate and subject to resale restrictions.
Promotional Shares: States may require the escrow of shares or a reduction in the offering price if equity securities of a development-stage company have been issued to promoters and/or insiders for less than 85% of the offering price.
Selling Expenses and Selling Security Holders: States may limit costs to a percentage of the offering amount or require selling security holders to pay a pro-rata share of offering prices.
Unequal Voting Rights: Some states may prohibit or limit unequal voting rights.
Capitalization Requirements: Prohibitions on the issuance of any security except common equity for development-stage or less seasoned issuers.
Specifying Offering Price: States may require that the offering price be related to book value, earnings history, industry price/earnings multiples, or other parameters.

The North American Securities Administrators Association (NASAA) has published Statements of Policy regarding merit standards for specific industries, and many states use these policies as guidelines in their review process.

Blue Sky Laws And Secondary Trading

The National Securities Markets Improvement Act of 1996 (NSMIA) provides automatic preemption from state blue sky laws for the secondary trading of securities that are listed and traded on a national securities exchange. However, this preemption does not apply to all secondary trading. Specifically:

Automatic Preemption: Securities traded on a national securities exchange are automatically preempted from compliance with state blue sky laws when it comes to secondary trading. This means that states cannot impose additional requirements or regulations on the secondary trading of securities listed on a national exchange.
Preemption of Sections 4(a)(1) and 4(a)(4): NSMIA preempts Sections 4(a)(1) and 4(a)(4) of the Securities Act of 1933 in the context of secondary sales and broker transactions on behalf of customers. Section 4(a)(1) provides a registration exemption for transactions by any person other than an issuer, underwriter, or dealer. Section 4(a)(4) provides an exemption for broker-dealers when executing customers' unregistered sales of securities if, after reasonable inquiry, the broker-dealer is not aware of circumstances indicating that the customer would be violating the registration requirements of Section 5 of the Securities Act.
Role of Sections 4(a)(1) and 4(a)(4): While Section 4(a)(4) is not, by itself, an exemption from registration, it allows broker-dealers to process the sale of unregistered securities with a valid exemption from registration. Sections 4(a)(1) and 4(a)(4) generally work in conjunction, providing the basis for most secondary trading of securities on established trading markets.

In summary, the NSMIA's automatic preemption applies to the secondary trading of securities listed on national securities exchanges, and Sections 4(a)(1) and 4(a)(4) play a key role in facilitating this secondary trading by providing exemptions from registration requirements under certain conditions.

The secondary trading of securities for issuers not subject to SEC reporting requirements, including those voluntarily reporting transactions that do not qualify under Sections 4(a)(1) or 4(a)(4), must comply with state blue sky laws. Compliance with blue sky laws is crucial for broker-dealers and investment advisers, as they cannot provide advice, solicit, distribute research, or make recommendations to investors in states where the security is not blue sky eligible.

Complying with blue sky laws in all 54 jurisdictions can be challenging or even impossible. The lack of uniformity in these laws, especially regarding secondary trading, poses significant difficulties for non-reporting issuers to satisfy the diverse requirements across states. Some states, like Alabama, Kentucky, and Virginia, may lack exemptions for the secondary trading of non-reporting issuers' securities.

In a letter to the SEC in 2014, OTC Markets Group highlighted the issues related to blue sky laws, emphasizing the impact on secondary trading. The letter pointed out that restrictions on advice and research in certain jurisdictions leave investors uninformed, contradicting investor protection goals. The lack of uniformity in blue sky laws creates difficulties for non-reporting issuers to meet compliance requirements.

The letter from OTC Markets to the SEC also provided statistics on blue sky compliance by companies trading on the OTCQB and OTCQX. Among the reviewed companies, none complied with all jurisdictions, and only a small percentage complied with secondary trading requirements in specific states.

The challenges and lack of uniformity in blue sky laws underscore the need for further federal intervention or regulatory measures to streamline and simplify compliance processes for issuers engaged in secondary trading activities across multiple jurisdictions.

The Manual Exemption

The Manual Exemption serves as a state exemption for the secondary trading of securities and is applicable in 44 out of the 54 U.S. jurisdictions, including all 50 states and four territories. Each jurisdiction has its own set of securities laws, and the Manual Exemption provides a mechanism for issuers to engage in secondary trading activities without registering the securities.

Key points about the Manual Exemption include:

Recognition of Securities Manuals: The exemption is typically tied to the issuer having a profile published in a recognized securities manual, such as Mergent’s or Standard & Poor's. These manuals provide detailed information about the issuer, including specific enumerated information and financial statements.
Supplemental Information: Some states may require the filing of supplemental or additional information to qualify for the Manual Exemption. The nature and extent of supplemental information can vary from state to state.
State-by-State Variation: The Manual Exemption is subject to varying state statutory language, which can be complex and confusing. Each state may have its own requirements and nuances, making it challenging to determine whether a company qualifies for or has obtained the Manual Exemption.
Complexity in Determination: Determining whether a company has or is qualified for the Manual Exemption can be intricate due to the differences in state laws and the specific criteria set forth by each jurisdiction.
Alternative Exemptions: Issuers trading in states that do not have the Manual Exemption must explore alternative secondary trading exemptions to comply with state blue sky laws.

Given the complexity and variability in state laws, navigating the Manual Exemption and other state-specific exemptions requires careful consideration and often legal expertise to ensure compliance with the securities regulations of each jurisdiction where an issuer intends to engage in secondary trading.

NASAA Regulation: A Coordinated Review Process

The Regulation A Tier 1 coordinated review process is designed to facilitate the qualification of securities offerings in multiple states efficiently. Here are key aspects of this process:

Participating Jurisdictions: Of the 54 U.S. jurisdictions, 48 participate in the Regulation A Tier 1 coordinated review process. This process streamlines the qualification process for issuers looking to offer securities in multiple states.
Election to Complete Coordinated Review: An issuer elects to undergo the coordinated review process by completing Form CR-3b and submitting the application along with a copy of the completed Form 1-A and audited financial statements to Washington State by email.
Filing Fees: Filing fees are mailed separately to each of the states where the issuer desires to qualify.
Appointment of Lead Examiners: A lead merit examiner and a lead disclosure examiner are appointed to manage the review process. If the issuer is not applying in any state with merit review, only a lead disclosure examiner is appointed.
Review, Comment, and Amendment Process: The filing undergoes a review, comment, and amendment process, with the lead examiner issuing comment letters on behalf of all participating states.
Review Timeline: The review process has a relatively quick timeline. Within three days of filing, the issuer receives a written receipt and a letter detailing the review process. The lead examiner drafts a proposed comment letter within ten days of the filing confirmation.
Conference Calls: The lead examiner schedules conference calls to discuss the comments and how the issuer can address concerns. Examiners make themselves available throughout the process, fostering a cooperative relationship between the examiner and the issuer.
Comment Responses: Issuers' responses to comments are reviewed within five business days of receipt. If there are no comments, the offering can be cleared within 21 business days of filing.
Review Standard: The review standard is based on the NASAA Statements of Policy, covering various topics such as impoundment of proceeds, affiliated transactions, options and warrants, preferred stocks, promoter’s equity investment, promotional shares, use of profits, underwriting expenses, financial condition, and voting rights.

Overall, the coordinated review process aims to expedite the qualification of Regulation A Tier 1 offerings across multiple jurisdictions while ensuring compliance with relevant regulatory standards and investor protection measures.

NASAA Coordinated Filing Program For Form Ds Associated With Regulation D, Rule 506

The NASAA offers a coordinated multi-state filing system allowing issuers to submit a Form D for Regulation D, Rule 506 offerings and pay-related fees to participating state securities regulators. The system is called the Electronic Filing Depository and is currently only available for Rule 506 Form D filings. Not all states participate with the plan. Arizona, California, Connecticut, Delaware, Florida, Louisiana, Massachusetts, Michigan, Minnesota, New York, North Carolina, and Oregon are omitted. In addition to state filing fees, the NASAA charges a one-time $150 fee to use the system.

Gayatri GuptaDecember 11, 2023

Nasdaq Compliance

The Nasdaq Stock Market features three tiers of listed companies, namely: (1) The Nasdaq Global Select Market, (2) The Nasdaq Global Market, and (3) The Nasdaq Capital Market. These tiers are characterized by progressively stringent listing requirements, with the Nasdaq Global Select Market setting the highest standards for initial listings and the Nasdaq Capital Market serving as the entry-level tier, particularly suitable for most small-cap issuers.

To list securities on Nasdaq, a company must fulfill minimum listing requirements, encompassing defined criteria related to financial performance, liquidity, and corporate governance. Nasdaq retains extensive discretion in the listing process and reserves the right to reject an application, even if the technical prerequisites are satisfied, if it deems such denial essential to safeguard the interests of investors and the public.

After securing a listing on Nasdaq, a company is obligated to adhere to ongoing listing standards. To initiate the listing process, a company seeking inclusion on Nasdaq must diligently complete and submit a comprehensive listing application to Nasdaq. This application should include specific documents and information as outlined by Nasdaq's requirements.

Typically, the application process spans a duration of four to six weeks. Once the application is submitted, a Nasdaq analyst is designated as the primary liaison with the company. Within two to three weeks of submission, the company can expect to receive an initial comment letter. The comment and review process persists until a decision is reached on the approval or denial of the application. Similar to filing with the SEC, a meticulously prepared Nasdaq application tends to attract fewer comments and facilitates a more streamlined process. Generally, the company's securities counsel assumes a leading role, serving as the primary contact for preparing the application and engaging in communication with Nasdaq.

Similarly to the SEC review process, Nasdaq conducts a thorough examination of publicly accessible information pertaining to a company. This encompasses, but is not limited to, SEC filings, the company's website, management communications and speeches, as well as press releases. The iterative nature of the review process typically doesn't necessitate a formal protocol, and communication is commonly facilitated through email correspondence and phone calls.

Listing Criteria For Nasdaq
For a company to list its securities on Nasdaq, it must satisfy the following criteria:

Specific Initial Requirements:
- Quantitative Standards: Meeting defined thresholds for both quantitative and qualitative factors.
- Qualitative Standards: Fulfilling certain qualitative benchmarks.
Continuing Requirements:
- Quantitative Criteria: Adhering to ongoing quantitative benchmarks.
- Qualitative Criteria: Maintaining specified qualitative standards.

The initial quantitative thresholds are typically set at a higher level than those required for continued listing. This distinction aims to ensure that companies achieve a sufficient level of maturity before being listed. Additionally, Nasdaq imposes rigorous corporate governance standards that listed companies must adhere to throughout their tenure on the exchange.

Before formally submitting a comprehensive listing application, a company has the option to pursue a preliminary listing eligibility review. In this stage, the Listing Qualifications Staff conducts a thorough examination of the company's public filings to assess its compliance with numerical listing requirements. Additionally, the team evaluates the company's adherence to corporate governance requirements outlined in the Marketplace Rules ("Rules"). This preliminary review provides valuable insights into the company's eligibility for listing on Nasdaq before committing to the full application process.

Upon completion of the preliminary review, the Listing Qualifications Staff will make an assessment regarding whether the company meets the numerical listing criteria. Additionally, any corporate governance or regulatory concerns raised during this phase will be considered to determine their impact on the listing approval. It's important to note that while the preliminary review provides insights, final approval necessitates the submission of a formal listing application. This application undergoes a thorough examination by the NASDAQ Listing Qualifications Staff. Furthermore, the final approval process involves satisfactory compliance with specific qualitative reviews. This includes an examination of the regulatory history of the company's officers, directors, and significant shareholders. Meeting these criteria is integral to obtaining the final approval for listing on Nasdaq.

Financial And Liquidity Requirements

    Requirements

    Equity Standard
    Market Value of Listed Standard
    Net Income Standard

    Listing Rules

    5505(a)
and
5505(b)(1)
    5505(a)
and
5505(b)(2)
    5505(a)
and
5505(b)(3)
    
    Stockholders Equity

    	$5 million
    	$4 million
    	$4 million
    
    The market value of publicly held shares

    $15 million
    $15 million
    $
      5 million
    
    Operating History

    	Two years
    N/A
    N/A
    
    The market value of listed securities

    N/A
    $50 million
    N/A
    
    Net income from continuing operations (in the latest fiscal
a year or in two of the last three
fiscal years)

    N/A
    N/A
    $750,000
    
    Publicly held shares

    	1 million
    	1 million
    	1 million
    
    Bid Price

    	$4
    	$4
    	$4)
    
    Closing Price

    	$3
    	$2
    	$43
    
    Corporate Governance

    Yes
    Yes
    Yes
    
    Total Shareholders

    300
    300
    300

Requirements	Equity Standard	Market Value of Listed Standard	Net Income Standard
Listing Rules	5505(a) and 5505(b)(1)	5505(a) and 5505(b)(2)	5505(a) and 5505(b)(3)
Stockholders Equity	$5 million	$4 million	$4 million
The market value of publicly held shares	$15 million	$15 million	$ 5 million
Operating History	Two years	N/A	N/A
The market value of listed securities	N/A	$50 million	N/A
Net income from continuing operations (in the latest fiscal a year or in two of the last three fiscal years)	N/A	N/A	$750,000
Publicly held shares	1 million	1 million	1 million
Bid Price	$4	$4	$4)
Closing Price	$3	$2	$43
Corporate Governance	Yes	Yes	Yes
Total Shareholders	300	300	300

Corporate Governance Requirements

Across all three tiers of the Nasdaq Stock Market, corporate governance requirements remain largely consistent. The categories encompassing corporate governance standards include:

Distribution of Annual or Interim Reports
Independent Directors
Audit Committee
Compensation Committee
Nomination of Directors
Code of Conduct
Annual Meetings
Solicitation of Proxies
Quorum
Conflict of Interest
Shareholder Approval
Voting Rights

These governance elements play a crucial role in ensuring transparency, accountability, and ethical conduct within listed companies, irrespective of the specific tier within the Nasdaq Stock Market.

Companies seeking listing on Nasdaq must adhere to specific corporate governance standards, including the following:

Compensation Committee with Independent Directors:
- The company is required to establish a compensation committee comprised of independent directors.
- The committee must consist of at least two members.
- Rule 5605(d)(2)(A) introduces an additional independence test for compensation committee members.
Responsibility for Executive Compensation:
- The compensation committee is tasked with determining or recommending to the entire board the compensation of the chief executive officer (CEO) and all other executive officers.

These standards are designed to ensure a level of independence and scrutiny in the decision-making processes related to executive compensation within the company.

The Application And Documents

The Nasdaq application package encompasses several key components:

Symbol Reservation Form:
- Used to request the reservation of a specific trading symbol for the company.
Listing Application:
- Requires supplemental documents and details about the company's financials, operations, and other pertinent information.
Listing Agreement:
- A formal agreement outlining the terms and conditions of the listing on Nasdaq.
Corporate Governance Certification:
- A certification affirming the company's commitment to meeting Nasdaq's corporate governance standards.
Initial Application Fee:
- Payable via check or wire transfer, this fee is a prerequisite for initiating the listing process.
Logo Submission Form:
- Used for submitting the company's logo for use in Nasdaq's materials.

These application forms are completed through the Nasdaq website listing center, utilizing the online platform to facilitate the submission of supplemental and supporting documents. It is advisable to thoroughly review all required paperwork in advance, ensuring that the necessary information is readily available before initiating the application process.

Symbol Reservation Form

The symbol reservation form is a concise, one-page electronic form where applicants input information for Nasdaq's consideration. Nasdaq symbols, limited to 1-5 characters, adhere to guidelines established by the Intermarket Symbols Reservation Authority (ISRA). The ISRA system is designed to organize symbols efficiently, prevent duplication, and reduce programming and operational complexities. The ISRA operates within the framework of the NMS Symbology Plan, a plan utilized by Nasdaq.

Key details about the symbol reservation process:

Symbol Choices:
- The form allows applicants to propose three symbol choices in order of preference.
- While Nasdaq generally honors the first choice if available, it retains the authority to assign, rescind, or reassign a trading symbol at its discretion.
ISRA and Nasdaq Authority:
- The ISRA and Nasdaq have overarching authority in managing the assignment of symbols.
Additional Information:
- The form captures essential details about the issuer and the planned public offering.
- Information may include the name of the attorney, lead underwriter (if applicable), CEO and CFO names, yearly revenues, company website, and the sector in which the company operates.

Completion of this symbol reservation form initiates the process of securing a trading symbol on Nasdaq, and it's essential to provide accurate and comprehensive information to facilitate this stage of the listing application.

The Application

The Nasdaq listing application process is comprehensive and varies based on the circumstances surrounding the listing sought. There are twelve distinct listing applications catering to different situations, including changes of control, switches from other exchanges or markets, spin-offs, and initial public offerings (IPOs). Each application, spanning approximately seven pages, collects detailed information about the company, covering areas such as address, contact and billing details, securities attorney and auditor information, transfer agent particulars, and the company's officers and directors. Specific information on the company's securities, including type, par value, and cusip number, is also required.

Furthermore, the application mandates disclosure of legal proceedings involving the company, its officers or directors, or significant shareholders over the past ten years. This encompasses inquiries, investigations, lawsuits, litigation, arbitrations, and other legal and administrative proceedings. Documents supporting the backup and final disposition of these matters must be provided.

Regarding private offerings within the prior six months, including bridge financings, shelf registrations, and Regulation S offerings, the company is required to disclose such activities. Additionally, the application delves into the company's background, posing questions to ensure compliance with seasoning rules.

While Nasdaq retains the right to request relevant supporting documents, specific documents are mandatory based on the application type. For an uplisting from an existing U.S. market, the application must include letters from three market makers confirming their commitment to making a market in the subject securities. Other required documents include a listing agreement, a logo submission form, a corporate governance certification form, regulatory correspondence over the past 12 months, and shareholder confirmation documents. Nasdaq often seeks confirmation from the company's transfer agent regarding the eligibility of the security for the direct registration program (DRS).

During the review of an up listing application, Nasdaq may request additional information, such as a Broadridge share range analysis and NOBO list, a certified shareholder list, details about mitigating any going concerns or opinions, income statement and/or balance sheet projections for the next 12 months, and confirmation of Sarbanes Oxley Section 302 and 906 certifications by the company, among other inquiries related to compliance and financial matters.

The Listing Agreement

The Listing Agreement is a concise document, spanning two pages, serving as a formal affirmation of the company's commitment to adhere to all rules and regulations set forth by the Nasdaq Stock Market. It includes provisions for indemnifying and holding Nasdaq harmless from liability. Notable points in the agreement include:

Compliance Assurance:
- The company explicitly agrees to comply with all rules and regulations stipulated by the Nasdaq Stock Market.
Indemnification Clause:
- The company indemnifies Nasdaq, meaning it undertakes to compensate or reimburse Nasdaq for any losses or damages incurred. This includes harm resulting from third-party trademark infringement claims related to the company's symbol and logo, as well as Nasdaq's use of the same.
Disclaimer of Warranty and Liability:
- The agreement contains a disclaimer of warranty and liability against Nasdaq for trading issues, with the exception of those resulting from gross negligence or willful misconduct.

This agreement establishes a clear framework for the relationship between the listed company and Nasdaq, emphasizing the company's commitment to regulatory compliance while providing indemnification for certain specified matters and delineating the scope of Nasdaq's liability.

Corporate Governance Certification Form

The corporate governance certification form certifies compliance with the governance requirements related to an audit committee, director nomination process, compensation committee, board composition, executive sessions, quorum, and codes of conduct. Where an exemption applies, the form requires specification of the exemption terms. The document specifies the different rules and exceptions in a check-the-box format.

Logo Submission Form

The logo submission form contains the guidelines for the logo and affirms Nasdaq’s rights to use the same. Nasdaq uses company logos in its marketing materials, on the MarketSite Video Wall and Tower, and websites.

Fees

Entry fees are based upon the aggregate number of shares to be listed at the time of initial listing, regardless of class, with a maximum cap of $75,000. Fees are assessed on the entry date in The Nasdaq Capital Market, except for $5,000, representing a non-refundable application fee. This fee must be submitted with the company’s application.

Nasdaq does not charge application or entry fees for any securities transferred from a national securities exchange.

Benefits Of Trading On An Exchange

There are many benefits to trading on an exchange instead of the OTC Markets. The most significant benefits to a business are the ability to attract analyst coverage and institutional investors and the corresponding increase in liquidity that comes with both. Stocks that trade on Nasdaq tend to have a lower bid/offer spread — again encouraging trading volume and liquidity. Exchange-traded securities are exempt from the penny stock definition, allowing more market maker and broker-dealer participation. As further explained below, a broker-dealer cannot recommend a penny stock transaction to its retail clients. Therefore, no analysts, financial advisors, or institutional investors make recommendations for purchases of penny stocks.

As an aside, this is one of the reasons that OTC Markets created the OTCQX market tier, which does not list penny stocks. It is also why the small-cap industry is pushing for a supported valid venture exchange (for further reading.

In today’s world, depositing stock and/or trade-in non-exchange traded securities is increasingly difficult. Despite the congressional efforts and SEC rulemaking in support of small-cap capital formation (for example, the JOBS Act, including the emerging growth company regulations, new Regulation A+ and Title III Crowdfunding and the new FAST Act), through enforcement and investigative proceedings, both the SEC and FINRA continue to apply pressure on broker-dealers, clearing firms and transfer agents to reduce the secondary trading and free flow of penny stocks. For more information on difficulties in depositing stocks.

Further On Penny Stocks

NASDAQ and NYSE MKT traded securities are exempted from the definition of a “penny stock” due to the initial and ongoing listing standards. Penny stock rules focus on broker-dealers’ activity in effectuating trades in penny stocks. The Securities Enforcement Remedies and Penny Stock Reform Act of 1990 (the “Penny Stock Act”) prohibits broker-dealers from effecting transactions in penny stocks unless they comply with the requirements of Section 15(h) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). The rules promulgated thereunder, particularly Exchange Act rules 15g-1 through 15g-100 (the “penny stock rules”).

Section 15(h) of the Exchange Act provides that no broker or dealer may effectuate a customer’s purchase or sale of any penny stock unless such broker or dealer.

Approves the customer for the specific penny stock transaction and receives a written agreement to the transaction from the customer.
Furnishes the customer a risk disclosure document describing the risks of investing in penny stocks.
Discloses to the customer the current market quotation, if any, for the penny stock, including the bid and ask prices and the number of shares that apply to such bid and ask prices.
Discloses to the customer the amount of compensation the firm and its broker will receive for the trade.

In addition, after executing the sale, a broker-dealer must send its customer monthly account statements showing the market value of each penny stock held in the customer’s account.

Moreover, brokers and dealers subject to the penny stock rules are subject to additional disclosure requirements outlined in Rules 15g-2 through 15g-9. For my information on penny stocks and the rules affecting broker-dealer activity.

Securities Lawyer Blog

Blue Sky Compliance

Listing Criteria For NasdaqFor a company to list its securities on Nasdaq, it must satisfy the following criteria:

Licensed in District of Columbia, State of Colorado, US District Court for the District of Columbia, US District Court for the District of Colorado, with pro hac vice Admission for the State of Maryland and Virginia.

Listing Criteria For Nasdaq
For a company to list its securities on Nasdaq, it must satisfy the following criteria: