News Release

NASD Board Approves Interpretive Material on Below-Market Conversion Rate Securities

Washington, D.C.—The National Association of Securities Dealers, Inc. (NASD®), today announced that its Board has approved the issuance of interpretive material explaining rules of The Nasdaq Stock Market® that issuers should consider when selling securities that may be converted into common stock at a price lower than the future market price of the common stock. These securities are referred to as "Future-Priced Securities."

If the issuance of a Future-Priced Security is followed by a decline in the common stock price, the existing holders of the common stock will face additional dilution. As the company issues more shares, the common stock price may tend to decline further. For this reason, the popular press has tagged these securities "death spiral securities," "toxic convertibles," and "ratchet securities."

After seeing an increase in the use of Future-Priced Securities, Nasdaq® determined that there may be a lack of understanding as to how Nasdaq rules apply to these transactions. Accordingly, Nasdaq prepared interpretive materials to assist issuers in better understanding the potential ramifications of issuing such securities. Each issuance of a Future-Priced Security must comply with several Nasdaq rules, including those relating to shareholder approval, voting rights, bid price, listing of additional shares, and reverse mergers.

While issuers on all public markets have used Future-Priced Securities, Nasdaq is the only market to provide interpretive materials for issuers to consider prior to entering into these transactions.

"We believe the material will help protect investors by assisting companies that are considering financings involving Future-Priced Securities to better understand the impact of the securities," said Michael Emen, Vice President, Nasdaq Department of Listing Qualifications. "By adhering to requirements, issuers can avoid unintended listing qualifications problems that may adversely impact the companies investors."

This interpretive material will be available on the Internet on the Nasdaq-Amex NewsroomSM (http‌://www‌ and will also be included in the NASD manual.

The NASD is the largest securities-industry, self-regulatory organization in the United States and parent organization of NASD Regulation, Inc., and The Nasdaq-Amex Market GroupSM. Through its regulatory subsidiary, the NASD develops rules and regulations, provides a dispute resolution forum, and conducts regulatory reviews of member activities for the protection and benefit of investors. Through the Nasdaq-Amex Market Group, the NASD operates The Nasdaq Stock Market and the American Stock Exchange (Amex®) in a unique dual market structure that brings together the central auction specialist and multiple Market Maker systems. The NASD oversees the nation’s 5,600 brokerage firms and more than half a million registered brokers. Consumers can contact the NASD to obtain the disciplinary and work histories, as well as other selected background information, of member firms and individual brokers or to get information on how to lodge a complaint.

For more information about the NASD and its subsidiaries, please visit the following Web sites: http‌://www‌; http‌://www‌; or the Nasdaq-Amex Newsroom at http‌://www‌