United States: NASDAQ’s New Market Categories; NASDAQ Becomes a National Securities Exchange

Effective July 3, 2006, the NASDAQ Stock Market (Nasdaq) established the NASDAQ Global Select Market, a new market tier billed as having "the highest listing standards in the world," and renamed Nasdaq’s existing two market tiers. The NASDAQ National Market has been renamed the "NASDAQ Global Market" and the NASDAQ SmallCap Market has been renamed the "NASDAQ Capital Market."

Approximately 1,000 companies had their listings transferred automatically to the new Global Select Market on July 1, 2006, from the National Market (now the Global Market). Nasdaq’s initial determinations as to which companies qualified for the Global Select Market were made based on financials available as of April 28, 2006. Companies on the Capital Market (formerly the SmallCap Market) are also eligible to move to the Global Select Market if they qualify, but they must apply for a transfer if they qualify and pay the difference in listing fees between the Capital Market and the Global Select Market.

Companies can apply to move between market tiers at any time if they qualify under another tier’s listing standards. In addition, beginning in 2007, Nasdaq will review all Global Market companies every October to see if they qualify for the Global Select Market. Nasdaq is not required to review Capital Market companies each year—these companies have to perform their own review and apply for a transfer if they qualify and pay the difference in listing fees between the Capital Market and the Global Select Market. Global Market companies that meet Global Select Market initial listing requirements in October will be transferred to the Global Select Market automatically on January 1st of the following year, provided they meet the less stringent continued listing requirements as of January 1st.

Many of the Global Select Market listing criteria are set at thresholds that are roughly 10% higher than current New York Stock Exchange (NYSE) listing criteria. The Nasdaq will permit companies who do not, as of July 1, 2006, meet Global Select Market criteria but who do meet NYSE listing criteria as of that date to transfer to the Global Select Market, subject to being demoted if the company does not satisfy the Global Select Market criteria by January 1, 2008. Companies who qualify under this temporary exception must apply to Nasdaq in order to move to the Global Select Market.

Companies who are included in the NASDAQ 100 index are automatically included in the Global Select Market.

The fees for the listing on the Global Select Market are the same as those for the former National Market and the current Global Market. Fees for the Capital Market have not changed. Time will tell if renaming the markets will allow Nasdaq to raise fees.

Global Select Market Initial Listing Criteria

The Global Select Market initial listing criteria fall into three categories: financial, liquidity and bid price.

An issuer, other than a closed end management investment company, must meet the requirements of one of subparagraphs (1), (2) or (3) below:

(1) The issuer must have:

(A) aggregate income from continuing operations before income taxes of at least $11 million over the prior three fiscal years;

(B) positive income from continuing operations before income taxes in each of the prior three fiscal years; and

(C) income from continuing operations before income taxes of at least $2.2 million in each of the two most recent fiscal years; or

(2) the issuer must have:

(A) aggregate cash flows of at least $27.5 million over the prior three fiscal years;

(B) positive cash flows in each of the prior three fiscal years; and

(C) both: (i) average market capitalization of at least $550 million over the prior 12 months; and (ii) total revenue of at least $110 million in the previous fiscal year; or

(3) the issuer must have both:

(A) average market capitalization of at least $850 million over the prior 12 months; and

(B) total revenue of at least $90 million in the previous fiscal year.

The requirements of subparagraphs (1), (2) and (3) below must be met:

(1) The security must demonstrate:

(A) (i) a minimum of 550 beneficial shareholders, and (ii) an average monthly trading volume over the prior 12 months of at least 1,100,000 shares per month; or

(B) a minimum of 2,200 beneficial shareholders; or

(C) a minimum of 450 beneficial shareholders, in the case of (i) an issuer listing in connection with its emergence from a bankruptcy or reorganization proceeding: or (ii) an issuer that is affiliated with another company listed on the Global Select Market;

(2) the security must have at least 1,250,000 publicly held shares; and

(3) the publicly held shares must have:

(A) a market value of at least $110 million; or

(B) a market value of at least $100 million, if the issuer has stockholders’ equity of at least $110 million; or

(C) a market value of at least $70 million in the case of (i) an issuer listing in connection with its initial public offering; (ii) an issuer that is affiliated with, or a spin-off from, another company listed on the Global Select Market; and (iii) a closed end management investment company.

In computing the number of publicly held shares for purposes of subparagraphs (2) and (3) above, Nasdaq will not consider shares held by an officer, director or 10% shareholder of the issuer.

For inclusion in the Nasdaq Global Select Market, an issuer not listed on the Nasdaq Global Market must have a minimum bid price of $5 per share. The initial listing bid price requirement is not applicable to issuers already listed on the NASDAQ Global Market.

The Global Select Market continued listing criteria are the same as the continued listing criteria for the Global Market, which have not changed from the criteria applicable to the former National Market.

Despite the changes in name, the initial and continued listing criteria for Global Market and Capital Market issuers have not changed as a result of the name changes and the addition of the new tier.

Although a Nasdaq memo to news editors indicated that the Global Select Market would have additional corporate governance requirements, no new governance criteria have been required in the newly adopted listing standards for the Global Select Market.

Nasdaq has become a "national securities exchange" as of August 1, 2006, joining the ranks of the New York Stock Exchange and the American Stock Exchange, among others. This means that issuers listed on any of the three tiers of Nasdaq now have a class of securities that is registered under Section 12(b) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), rather than under Section 12(g) of the Exchange Act. Practically speaking, this has little impact for issuers other than to require a change in the box that is checked on next year’s annual report on Form 10-K, indicating the section of the Exchange Act under which the issuer’s securities are registered, and it will also require the same change on any subsequently filed Forms 8-A (for purposes of IPOs and other new registrations of classes under the Exchange Act).

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