On August 26, 2014, The NASDAQ Stock Market LLC (“NASDAQ”) filed with the Securities and Exchange Commission (the “SEC”) certain proposed amendments to the NASDAQ Stock Market Rules (the “Amendments”) to provide for, among other things, a new all-inclusive annual listing fee (the “All-Inclusive Annual Fee”). The Amendments were effective upon the filing with the SEC; however, NASDAQ has designated that the Amendments will become operative on January 1, 2015. Companies that become subject to the All-Inclusive Annual Fee will pay a single annual listing fee to cover various matters which had previously been subject to an annual fee and several other separate fees. NASDAQ’s incorporation of the All-Inclusive Annual Fee into its fee structure is expected to simplify NASDAQ’s payment process as well as promote visibility into the costs associated with listing on NASDAQ. NASDAQ also indicated that the All-Inclusive Annual Fee program will give NASDAQ greater visibility into its revenue and allow it to continue to invest in technology and other resources available to NASDAQ-listed companies. As part of the Amendments, NASDAQ also modified certain listing fees and clarified certain provisions of the NASDAQ Stock Market Rules.
What is the All-Inclusive Annual Fee?
By participating in the All-Inclusive Annual Fee program, companies that pay the All-Inclusive Annual Fee to NASDAQ will not incur additional charges for certain ordinary costs related to listing for a particular year, some of which had previously been subject to separate fees. Notably, participating companies will not have to pay additional fees associated with any of the following matters:
- Issuing additional shares;
- Record-keeping modifications;
- Substitution listing events;
- Written interpretation of the listing rules; and
- Reviews of compliance plan by NASDAQ staff.
However, companies that pay the All-Inclusive Annual Fee will still be required to pay a separate fee the following matters, which NASDAQ has indicated will not be covered by the all-inclusive annual fee:
- Application and entry fees associated with listing new classes of securities; and
- Fees associated with independent Hearings Panel or Nasdaq Listing and Hearing Review Council review of any delisting determination or public reprimand letter issued by NASDAQ.
How much is the All-Inclusive Annual Fee?
In the Amendments, NASDAQ has published the following chart summarizing the current fee, the proposed annual fee (for companies that do not opt into the All-Inclusive Annual Fee program) and the proposed all-inclusive annual fee applicable to domestic and foreign companies, other than Company’s with ADRs and closed-ended funds. NASDAQ indicated that this schedule applies to over 95% of the companies listed on NASDAQ:
NASDAQ Global/Global Select Markets
NASDAQ Capital Market
The revised annual fee for companies with ADRs listed on the NASDAQ Capital Market will be $32,000, for companies with up to 10 million ADRs listed, or $40,000 for companies with more than 10 million ADRs listed. The revised annual fee for companies with ADRs listed on the Global or Global Select Markets will range from $40,000 to $69,000, compared with the current range of $30,000 to $50,000. Fees for families of closed-end funds listed on each market tier are the same and will increase from the current range of $15,000 to $75,000, based on shares outstanding in the fund family, to a new range of $22,500 to $80,000.
When will a listed company become subject to the All-Inclusive Annual Fee?
All companies that are listed on NASDAQ will become subject to the All-Inclusive Annual Fee commencing on January 1, 2018. Currently listed companies, in addition to companies that submit for listing on NASDAQ prior to January 1, 2015, may voluntarily elect to opt-in to the All-Inclusive Annual Fee program or elect to remain on the current fee schedule. However, companies that become listed on NASDAQ after January 1, 2015 will mandatorily become subject to the All-Inclusive Annual Fee.
What are the benefits of electing to opt into the All-Inclusive Annual Fee program early?
NASDAQ announced the incentives set forth below for companies that elect to opt into the All-Inclusive Annual Fee program:
- The All-Inclusive Annual Fee for a listed company for each of the years of 2015, 2016 and 2017 will depend on the lower of: (i) such company’s current total shares outstanding; or (ii) the total shares outstanding for such company as set forth in NASDAQ’s informational records as of December 31, 2014. The practical implication of such incentive would be that a company’s All-Inclusive Annual Fee would not be increased until at least January 1, 2018 as a result of any increase of a company’s outstanding shares during the following three years.
- A company will not be required to pay fees in connection with the listing of additional shares after December 31, 2014 irrespective of when such shares were actually issued. Consequently, NASDAQ has forgiven any fees owed by a company for shares issued by such company in the final period of 2014 since such fees would otherwise have been billed in 2015.
What other Amendments did NASDAQ propose?
NASDAQ also proposed to amend the NASDAQ Stock Market Rules in order to increase certain fees set forth in its existing fee structure as well as modifying certain rules for clarification purposes.
- Increases to NASDAQ’s Existing Fee Structure: The Amendments increased the total amount of fees payable by companies that elect to continue fee payment in accordance with NADSAQ’s existing fee structure. The chart above sets forth the 2015 annual fee for companies that do not elect to opt into the All-Inclusive Annual Fee program.
- Modification of Certain Rules: The Amendments alter the text of certain existing rules with the intent of clarifying such rules, including, but not limited to, the following modifications
- (i) Clarifying the manner in which annual fees are assessed upon the initial listing of a company or upon transfer of a company between market tiers;
- (ii) Clarifying the application of fee waivers in specific merger situations; and
- (iii) Removing from the rules certain effective dates that are no longer applicable.
What Do I Need To Do Now?
NASDAQ-listed companies that desire to voluntarily elect to opt-in to the All-Inclusive Annual Fee program for 2015 may do so by completing the All-Inclusive Annual Listing Fee Opt-in Form until December 31, 2014. Such form is available in the NASDAQ OMX Listing Center. Listed companies that decide not to opt into the All-Inclusive Annual Fee program will be charged in accordance with NASDAQ’s standard listing fee schedule, which have been increased as a result of the Amendments.
In addition, companies pursuing (or considering) an initial public offering (“IPO”) should evaluate the All-Inclusive Annual Fee program when assessing whether it will list its shares on NASDAQ, The New York Stock Exchange, or some other exchange. This will be particularly important to the extent the IPO is expected to be completed in 2015, when the All-Inclusive Annual Fee program becomes mandatory for new listings. The on-going stock exchange annual fee should be factored into a company’s decision of which stock market to select for listing its shares in light of the significant component that stock exchange fees comprise of most small and medium-sized public company’s ongoing public company compliance costs.
For any questions or more information on these or any related matters, please contact any attorney in the firm’s corporate practice group. A list of such attorneys can be found by clicking Lawyers on this page. John Tishler (858-720-8943, firstname.lastname@example.org), Peter Menard (213-617-5483, email@example.com, Jason Schendel (650-815-2621, firstname.lastname@example.org) and Irene Lu (650-815-2608, email@example.com) participated in drafting this posting.
This update has been prepared by Sheppard, Mullin, Richter & Hampton LLP for informational purposes only and does not constitute advertising, a solicitation, or legal advice, is not promised or guaranteed to be correct or complete and may or may not reflect the most current legal developments. Sheppard, Mullin, Richter & Hampton LLP expressly disclaims all liability in respect to actions taken or not taken based on the contents of this update.