NYSE Rule Change To Allow The Delisting Of Companies That Change Primary Business

On July 24, 2024, the SEC approved a NYSE rule change that allows companies that change their primary business to be delisted.

Critical Aspects Of NYSE Continued Listing Standards

As I wrote about in October 2023, the NYSE continued listing requirements as outlined in the Listed Company Manual section 802.01 including pre-rule change:

• Distribution of Capital Stock: (i) total stockholders of 400; or (ii) total stockholders of 1,200 and an average monthly trading volume of less than 100,000 shares; or (iii) total non-affiliated publicly held shares of 600,000.
• Market value: (i) average global market capitalization of less than $50 mil and stockholders equity of less than $50 mil for 30 consecutive trading days.
• Disposal of assets – Reduction of operations: The NYSE will consider a suspension or delisting if: (i) the company has sold or otherwise disposed of its principal operating assets, ceased to be an operating company or has discontinued a substantial portion of its operations or business for any reason whatsoever; (ii) a bankruptcy or liquidation has been authorized; or (iii) the NYSE receives advise from an authoritative third party that the security has no value.
• Failure to Comply with Listing Agreement and/or SEC Requirements: This is all-encompassing as to all NYSE rules (including notice requirements, annual shareholder meetings, soliciting proxies, etc.) and all SEC reporting requirements.  Where the deficiency is related to the failure to file a report with the SEC in a timely manner, the NYSE will provide prompt notice, and the company will be required to engage in discussions with the NYSE.  A company will be given a conditional six-month cure period with the potential for an additional six-month cure period.  The Exchange will consider all facts and circumstances, including, but not limited to, allegations of fraud, the termination or resignation of the company’s independent auditor, the resignation of members of the audit committee or other board members, resignation or termination of key officers and the company filing history.
• Other events: Suspension or delisting can occur where: (i) registration under the Exchange Act is no longer effective; (ii) an entire outstanding call, issue or series of securities is retired through payment, redemption, reclassification, or otherwise; (iii) operations contrary to public interest; (iv) failure to pay listing fees; (v) common stock selling for a substantial period at a low price per share and the company does not complete a reverse split after being notified by the Exchange; (v) any components of a unit do not meet the applicable listing requirements; or (vi) non-compliance with executive compensation clawback rules.

Immediate Suspension And Delisting For Business Changes Not Promptly Provided

The NYSE has now added a requirement related to any company that changes its primary business focus.  The new paragraph provides that the NYSE may, at its discretion, subject a listed company to immediate suspension and delisting if that listed company has changed its primary business focus to a new area of business that it was not engaged in at the time of its original listing, or which was immaterial to its operations at the time of its original listing.

Under the new rule, any company that changes its primary business focus must promptly notify the NYSE in writing.  The NYSE will then conduct a continued listing analysis and potentially take delisting action.  The continued listing analysis will focus on whether the NYSE would have accepted the listed company for initial listing if it had been engaged in its modified business at the time of the original listing.  Moreover, the analysis will concentrate on the suitability of qualitative listing more than quantitative standards.  The NYSE will consider other factors, such as any changes in the management, board of directors, voting power, ownership, and the company’s financial structure.

Despite the new rule, the NYSE notes in its release that delisting a company due to a change in primary business would be an extraordinary measure and is not expected to become routine.

Stay Ahead Of NYSE Rule Changes

Ensure your company remains compliant with the latest NYSE listing standards.  Contact ANTHONY, LINDER & CACOMANOLIS, PLLC‘s business law team today for a comprehensive review and strategic guidance.  Secure your listing status by calling 877-541-3263 or using our contact page to schedule your appointment.