New Rules to Toughen Listing Standards for Reverse Merger Companies Approved by the SEC

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Yoomi Lee | Bloomberg Law SEC Press Release No. PR-2011-235 (Nov. 9, 2011); SEC Release No. 34-65708 (Nov. 8, 2011); SEC Release No. 34-65709 (Nov. 8, 2011); SEC Release No. 34-65710 (Nov. 8, 2011) The Securities and Exchange Commission (SEC) approved rules adopting stringent requirements that companies going public through a reverse merger must meet to be listed on the NASDAQ Stock Market LLC (NASDAQ), the New York Stock Exchange LLC (NYSE), and NYSE Amex LLC (NYSE Amex, and collectively, Exchanges). Typically, many private companies, in addition to those that operate in foreign countries, seek access to U.S. capital markets by merging with an existing public shell company through a reverse merger. Due to the nature of transaction, regulators and auditors have had difficulty obtaining reliable information from reverse merger companies, especially those based in foreign countries. According to the SEC, trading either has been suspended or halted in more than 35 companies based overseas for lack of current and accurate information about the firms and their finances. To that end, the SEC issued an investor bulletin about reverse mergers, and also launched an initiative to examine whether such companies were accurately reporting their financial results. For more information see, Bloomberg Law Reports®—Securities Law, SEC Warns Investors about Investing in Reverse Merger Companies (June 10, 2011)

New Rules

Under the new rules, the Exchanges will prohibit a reverse merger company from applying to list until the combined entity has traded in the U.S. over-the-counter market, on another national securities exchange, or on a regulated foreign exchange, for at least six months or one year following the filing of all required information about the transaction with the SEC, including audited financial statements. Further, the reverse merger company must maintain a minimum stock price on at least 30 of the 60 trading days immediately prior to submitting the list application.


Generally, depending on the exchange, a reverse merger company will be exempt from the requirements of the new rules, if (1) the listing is in connection with a significant firm commitment underwritten public offering, or (2) at least four annual reports with audited financial information have been filed with the SEC. DisclaimerThis document and any discussions set forth herein are for informational purposes only, and should not be construed as legal advice, which has to be addressed to particular facts and circumstances involved in any given situation. Review or use of the document and any discussions does not create an attorney-client relationship with the author or publisher. To the extent that this document may contain suggested provisions, they will require modification to suit a particular transaction, jurisdiction or situation. Please consult with an attorney with the appropriate level of experience if you have any questions. Any tax information contained in the document or discussions is not intended to be used, and cannot be used, for purposes of avoiding penalties imposed under the United States Internal Revenue Code. Any opinions expressed are those of the author. The Bureau of National Affairs, Inc. and its affiliated entities do not take responsibility for the content in this document or discussions and do not make any representation or warranty as to their completeness or accuracy.©2014 The Bureau of National Affairs, Inc. All rights reserved. Bloomberg Law Reports ® is a registered trademark and service mark of The Bureau of National Affairs, Inc.

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