SEC Approves New Exchange for Small Cap Issuers
By: CHRISTOPHER J. MELSHA
September 2011
In May 2011, the Securities and Exchange Commission approved a new stock exchange to be called the BX Venture Market. Owned and operated by the NASDAQ OMX Group, the BX Venture Market is intended to provide an exchange listing platform for companies that currently do not meet continued quantitative listing requirements of existing exchanges, such as the NASDAQ Stock Market. The BX Venture Market will have minimal quantitative listing requirements, but listed companies will need to comply with many qualitative listing requirements, though less significantly stringent than those of other national exchanges. Primary candidates for listing on the BX Venture Market will include many issuers with securities trading on the OTC Bulletin Board or The Pink Sheets, as well as companies recently delisted from a national exchange. Currently, the NASDAQ OMX Group expects to launch the BX Venture Market in 2012 but has yet to announce when it will begin accepting applications.
The quantitative listing requirements of the BX Venture Market include the following:
*Prior to September 30, 2011, applicants delisted from a national exchange since January 1, 2010 would be eligible for this standard. After September 30, 2011, a company would have three months to list on the BX Venture Market after being delisted.
The listing rules of the BX Venture Market will require issuers to comply with, among others, the following qualitative requirements:
- At least three independent directors (but not necessarily a majority), including a fully independent audit committee
- Review of related party transactions by independent directors
- Independent director oversight of executive compensation
- Shareholder approval of equity compensation
- Annual shareholder meetings
- A code of conduct applicable to all directors, officers, and employees
Notably, the BX Venture Market will not require listed companies to obtain shareholder approval for private placements where 20 percent or more of the issuer’s stock is issued or issuable at less than market value—the so-called “20 percent rule.”
The BX Venture Market will not be part of the national market system, so listed securities will be subject to state blue sky rules in connection with primary public offerings. However, the BX Venture Market will be deemed a national securities exchange, meaning listed issuers will be eligible to use Form S-3 to register securities offerings, provided the other eligibility requirements for use of Form S-3 are met. In addition, securities listed on the exchange will need to be registered under § 12(b) of the Securities Exchange Act of 1934.
According to the NASDAQ OMX Group, the BX Venture Market will provide small companies with a regulated and transparent listing venue, and may allow institutional shareholders to continue holding their shares. NASDAQ OMX Group also believes that companies and their shareholders will benefit from the high quality of the real-time trading platform on NASDAQ OMX’s INET platform.
More information concerning the BX Venture Market is available at www.bxventure.com.