SEC Tightens Rules On Reverse Mergers

Article FT

The Securities and Exchange Commission has approved new rules proposed by stock exchanges to make it harder for private companies to go public by merging with a shell company, a response to concerns that Chinese groups were using such deals to skirt accounting rules.

Reverse mergers will now require a “seasoning period” of one year during which companies will only be able to trade in over-the-counter markets but will still have to file financial statements according to listed-company standards.

They will also have to meet a minimum share price requirement of a $4 closing price for 30 of the 60 days before applying to list with an exchange.

In the past, the exchanges said, promoters of such deals were able artificially to inflate prices to meet standards.
“We believe the more rigorous standards for reverse mergers will benefit investors and issuers, and we applaud the SEC for its thoughtful attention and leadership on this important matter,” the NYSE said in a statement.