NASDAQ Proposes Revisions to Shareholder Approval Rules

July 14, 2017

Nasdaq, Inc. recently requested comments regarding possible updates to its “20% voting rule.” That rule, adopted in 1990, requires Nasdaq listed companies to obtain shareholder approval when issuing 20% or more of its stock in a private offering for a price less than the greater of book or market value. The proposals eliminate the book value test as outmoded, change the market value from a single day’s closing bid price to a five day average closing price to enhance reliability, and add a new governance safeguard that such 20% or greater issuances, regardless of price, be approved by a majority of independent directors, or by the company’s shareholders. We do not expect the proposed revisions to result in a significant change in current practice, other than perhaps for issuers of securities that trade at a discount to book value. In fact, the proposed revisions will create an additional requirement of independent director approval in certain instances. Nasdaq will accept comments on the proposed changes until July 31, 2017.


  • Nasdaq Stock Market Rule 5635(d) currently requires listed companies to obtain shareholder approval prior to the issuance of common stock (or securities convertible into common stock) equal to 20 percent or more of the common stock or voting power outstanding if the offer price for such shares is less than the greater of the book or market value of the stock. Rule 5635(d) does not currently require independent director approval irrespective of the offer price.
  • Nasdaq is now soliciting comments on proposed revisions to Rule 5635(d), which, if enacted, would:
    • Change the manner of calculating the price threshold below which shareholder approval is required from the closing bid price on the day prior to the issuance to the average closing price of the common stock for the five immediately preceding trading days;
    • Remove the concept of “book value” from the determination of the price threshold below which shareholder approval is required; and
    • Introduce a new independent director approval requirement applicable to all transactions where shareholder approval is not obtained, pursuant to which any issuance of 20% or more of a company’s outstanding shares, even if priced above the price threshold, must be approved by either (i) a majority of the listed company’s independent directors or (ii) by a committee comprised solely of independent directors.

Read "NASDAQ Proposes Revisions to Shareholder Approval Rules."