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Law360 (April 6, 2020, 5:27 PM EDT ) The New York Stock Exchange on Friday proposed a temporary suspension of certain market capitalization and fundraising rules in an effort to help listed companies weather the market turmoil related to COVID-19.
One proposal would suspend the $50 million market capitalization requirement for continued listing and the dollar price rule, while the second would waive certain shareholder approval requirements for private share placements.
NYSE said the changes submitted to the U.S. Securities and Exchange Commission on Friday are intended to help listed companies with the market turmoil associated with the spread of the novel coronavirus.
"The U.S. and global economies have experienced unprecedented disruption as a result of the ongoing spread of COVID-19, including severe limitations on companies' ability to operate their businesses, dramatic market declines and volatility in the U.S. and global equity markets, and severe disruption in the credit markets," the exchange said.
The volatility has led to "an unusually high number" of listed companies that are about to fall below the $50 million threshold for market capitalization, NYSE said. Many companies are also on the cusp of having their average closing share price dip below $1 for a 30-day period, which would leave them subject to compliance plan periods, the exchange said.
Waiving the $50 million standard and the dollar price standard would let companies off the hook for filing noncompliance disclosures and drafting up compliance plans, NYSE said. It may also help reduce stigma with investors, the proposal said.
"The Exchange is also concerned about the negative effect a below-compliance designation will have on investor perceptions of these companies, especially given the fact that many companies are suffering falling stock prices as a result of general market conditions rather than any company-specific factors," the proposal said.
Under the proposal, the rule suspension would last through June 30. The exchange noted that it has changed the dollar price standard before, in 2009, during the financial crisis.
The other proposed change, which addresses shareholder approval requirements, would allow companies to quickly raise cash through private placements, NYSE said. NYSE proposed waiving the current rule that requires shareholder approval for issuing shares to company directors or other related parties when the number of new shares is more than 1% of total share volume or voting power.
"The Exchange believes that it is likely that many listed companies will have urgent liquidity needs in the coming months due to lost revenues and maturing debt obligations," the proposal said.
In the past, shareholder approval rules created a barrier to some of these transactions, NYSE noted.
"When similar conditions existed after the financial crisis of 2008-09, the Exchange observed that many companies sought capital by selling significant amounts of equity in private placement transactions," the proposal said. "The Exchange notes that companies raising capital in that manner at that time were often limited by the NYSE's shareholder approval requirements with respect to the size and structure of the transactions they were able to undertake."
The waiver would also apply to an existing exception to the 1% rule that allows some private placements to represent up to 5% of share volume if the sale meets certain price requirements. NYSE also said it wants to dispense with the 20% threshold for so-called "bona fide financing."
"Existing large investors are often the only willing providers of much-needed capital to companies undergoing difficulties and the Exchange believes that it is appropriate to increase companies' flexibility to access this source of capital for a limited period," the proposal said.
In order to qualify for the waiver, the transactions would have to be approved by the company's audit committee or a similar committee of independent directors.
"The effect of this proposed waiver would be that a listed company would be exempt from the shareholder approval requirement ... in relation to a private placement transaction regardless of its size or the number of participating investors or the amount of securities purchased by any single investor, provided that the transaction is a sale of the company's securities for cash at a price that meets the minimum price requirement," the proposal said.
The changes would only be in place through June 30 and are in line with existing Nasdaq rules, NYSE noted.
The SEC has also been pushing through policies to provide relief to companies hit by the virus. The agency on March 25 said that disclosure reports originally due between March 1 and June 1 could be filed up to 45 days late. And the day before, the agency eased certain short-term borrowing rules for investment funds.
--Additional reporting by Dean Seal and Tom Zanki. Editing by Alanna Weissman.
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