5101. Preamble to the Rule 5100 Series

Nasdaq is entrusted with the authority to preserve and strengthen the quality of and public confidence in its market. Nasdaq stands for integrity and ethical business practices in order to enhance investor confidence, thereby contributing to the financial health of the economy and supporting the capital formation process. Nasdaq Companies, from new public Companies to Companies of international stature, are publicly recognized as sharing these important objectives.

Nasdaq, therefore, in addition to applying the enumerated criteria set forth in the Rule 5000 Series, has broad discretionary authority over the initial and continued listing of securities in Nasdaq in order to maintain the quality of and public confidence in its market, to prevent fraudulent and manipulative acts and practices, to promote just and equitable principles of trade, and to protect investors and the public interest. Nasdaq may use such discretion to deny initial listing, apply additional or more stringent criteria for the initial or continued listing of particular securities, or suspend or delist particular securities based on any event, condition, or circumstance that exists or occurs that makes initial or continued listing of the securities on Nasdaq inadvisable or unwarranted in the opinion of Nasdaq, even though the securities meet all enumerated criteria for initial or continued listing on Nasdaq. In all circumstances where the Listing Qualifications Department (as defined in Rule 5805) exercises its authority under Rule 5101, the Listing Qualifications Department shall issue a Staff Delisting Determination under Rule 5810(c)(1), and in all circumstances where an Adjudicatory Body (as defined in Rule 5805) exercises such authority, the use of the authority shall be described in the written decision of the Adjudicatory Body.

IM-5101-1. Use of Discretionary Authority

To further Companies' understanding of Rule 5101, Nasdaq has adopted this Interpretive Material as a non-exclusive description of the circumstances in which the Rule is generally invoked.
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Although Nasdaq has broad discretion under Rule 5101 to impose additional or more stringent criteria, the Rule does not provide a basis for Nasdaq to grant exemptions or exceptions from the enumerated criteria for initial or continued listing, which may be granted solely pursuant to rules explicitly providing such authority.

Rule 5250(c)(1): A Company shall timely file all required periodic financial reports with the Commission through the EDGAR System or with the Other Regulatory Authority. A Company that does not file through the EDGAR System shall supply to Nasdaq two (2) copies of all reports required to be filed with the Other Regulatory Authority or email an electronic version of the report to Nasdaq at continuedlisting@nasdaq.com. All required reports must be filed with Nasdaq on or before the date they are required to be filed with the Commission or Other Regulatory Authority. Annual reports filed with Nasdaq shall contain audited financial statements.

Rule 5820(d)(4): In the case of a Company that fails to file a periodic report (e.g., Form 10-K, 10-Q, 20-F, 40-F, or N-CSR), the Listing Council may grant an exception for a period not to exceed 360 days from the due date of the first such late periodic report. The Company can regain compliance with the requirement by filing that periodic report and any other delinquent reports with due dates falling before the end of the exception period. In determining whether to grant an exception, and the length of any such exception, the Listing Council will consider the Company's specific circumstances, including the likelihood that the filing can be made within the exception period, the Company's past compliance history, the reasons for the late filing, corporate events that may occur within the exception period, the Company's general financial status, and the Company's disclosures to the market. This review will be based on information provided by a variety of sources, which may include the Company, its audit committee, its outside auditors, the staff of the SEC and any other regulatory body.

Issue: At issue is whether the Listing Council has discretion to allow a company to remain listed notwithstanding the fact that it was delinquent in filing its periodic financial reports for more than a year prior to the Panel's de-listing determination, when during the pendency of the Company's appeal, the Company filed its delinquent financial reports?

Determination: Affirm the decision of the Hearings Panel to suspend and delist the Company.

The Listing Council agreed with Staff that the Company made no cognizable or persuasive arguments in its briefs that the Panel's delisting determination was made in error. In this regard, the Listing Council noted that the Company itself stated expressly that it does not quarrel with the Panel's determination or its interpretation of the Listing Rules.

Listing Rule 5815(c)(1)(F) provides that the extent of the Panel's discretion to grant a company an exception to Listing Rule 5250(c) is 360 days following the due date of a company's first delinquent periodic report, and that a company may regain compliance with the Listing Rule only by filing its delinquent reports before the end of the exception period. In this instance, the Company requested and it received from the Panel the full 360 day exception period within which to regain compliance. Nevertheless, the Company informed the Panel, on May 4, 2018, that it would not be in a position to regain compliance before the end of the exception period on May 10, 2018. Given that Listing Rule 5815(c)(1)(F) afforded the Panel no further discretion to grant the Company an exception beyond February 23, the Listing Council determined that the Panel had no choice but to de-list the Company.

Moreover, the Listing Council noted that Listing Rule 5820(d)(4) afforded no additional discretion to the Listing Council to grant the Company a further extension. Like Listing Rule 5815(c)(1)(F), Listing Rule 5820(d)(4) states that the Listing Council "may grant an exception for a period not to exceed 360 days from the due date of the first such late periodic report" and that a company "can regain compliance with the requirement by filing … delinquent reports with due dates falling before the end of the exception period."

The Listing Council disagreed with the Company's assertion that Listing Rule 5101 authorized the Listing Council to act as it sees fit, notwithstanding restrictions imposed upon it by other Listing Rules, such as Listing Rule 5820. Although Listing Rule 5101 does state that the Exchange has "broad discretionary authority over the initial and continued listing of securities," the Listing Council noted that the Rule also states immediately thereafter that "Nasdaq may use such discretion to deny initial listing, apply additional or more stringent criteria for the initial or continued listing of particular securities, or suspend or delist particular securities based on any event, condition, or circumstance that exists or occurs that makes initial or continued listing of the securities on Nasdaq inadvisable or unwarranted in the opinion of Nasdaq, even though the securities meet all enumerated criteria for initial or continued listing on Nasdaq." Moreover, the Listing Council observed that IM-5101-01 makes clear that the Listing Council's discretion does not include granting exemptions from Listing Rules to the extent that the Listing Rules do not explicitly authorize such exemptions to be made:

The Listing Council said that, although Nasdaq has broad discretion under Rule 5101 to impose additional or more stringent criteria, the Rule did not provide a basis for Nasdaq to grant exemptions or exceptions from the enumerated criteria for initial or continued listing, which may be granted solely pursuant to rules explicitly providing such authority. Any other interpretation of Listing Rule 5101, it said, would render meaningless the express limits that the Exchange placed upon the authority of the Listing Council elsewhere in the Listing Rules, including in Listing Rule 5820. The Listing Council presumed that the Exchange intended to impose limits on the Listing Council's authority, and it interpreted Listing Rule 5101 accordingly.

Finally, the Listing Council noted that Nasdaq, as a Self-Regulatory Organization, is responsible for maintaining a fair and orderly market and for enforcing its Listing Rules consistently and in a manner that serves the interests of investors and the public. It said that Nasdaq would be acting contrary to these responsibilities if it credited companies for their belated successes in regaining compliance with the Listing Rules. Simply put, the Listing Council remarked that it would be unfair for a basketball referee to allow a team to win a game with a half-court shot – no matter how skillful and impressive that shot may be – if the shot occurs after the buzzer sounds and the game ends.