LAWYER

Nasdaq Proposes Stricter Delisting Rules for Low-Priced Stocks

 
August 14, 2024

Key Takeaways

  • Nasdaq is proposing accelerated compliance and delisting timelines for all companies that do not comply with its minimum bid price requirement
  • Additionally, under the proposed rule, if a company has implemented a reverse stock split in the year prior to minimum bid price non-compliance, Nasdaq will immediately begin delisting procedures

Summary

On August 8, 2024, The Nasdaq Stock Market LLC (“Nasdaq”) proposed a rule change regarding its minimum bid price compliance periods and delisting procedures.1 The proposed change includes stricter deadlines for companies failing to meet Nasdaq’s Minimum Bid Price Requirement (as defined below).  

Under Nasdaq Rule 5550(a)(2), companies must maintain a minimum bid price of $1.00 per share (the “Minimum Bid Price Requirement”) to remain listed. If a company’s bid price dips below $1.00 for a period of 30 consecutive trading days, it is deemed non-compliant with the Minimum Bid Price Requirement until it maintains a bid price of $1.00 or more for ten consecutive trading days (or longer, at Nasdaq’s discretion).

Currently, a company generally has 180 calendar days to regain compliance, with a possible extension of another 180 days. If the company does not cure its non-compliance within 360 days, Nasdaq may initiate delisting, but the company can appeal to a panel and potentially gain an additional 180 days, totaling 540 days, during which its stock remains listed. Under the current rule, a company’s stock remains listed during the appeal process.

Under the proposed rule, Nasdaq would suspend trading after 360 days, delisting the stock and moving it to over-the-counter trading during the appeal, rather than allowing the stock to continue to trade on the exchange during the appeal process. Nasdaq indicated in its proposal that it believes that 360 days is a sufficient period of time to regain compliance with the Minimum Bid Price Requirement.

Companies often use reverse stock splits to regain compliance with the Minimum Bid Price Requirement by combining multiple shares into one, thereby increasing the price of each post-split share. Under current Nasdaq Listing Rule 5810(c)(3)(A)(iv), implemented in 2020, a company that has effected one or more reverse stock splits with a cumulative ratio of 1-for-250 or higher is subject to delisting and not eligible for any compliance periods if it falls out of compliance with the Minimum Bid Price Requirement within two years of such reverse stock split(s) (the “2020 Rule”). In addition to the 2020 Rule’s two-year lookback, the proposed rule introduces stricter delisting procedures for companies that have implemented a reverse stock split within the year prior to non-compliance, regardless of the share ratio. Under the proposed rule, if a company has implemented a reverse stock split within the prior year, Nasdaq would immediately begin delisting procedures upon non-compliance rather than providing an automatic 180-day compliance period, though the company can still appeal the delisting and ask the panel for time to regain compliance, during which appeal process it will remain listed on the exchange.

Comparison of Current and Proposed Rules

Non-compliance ScenarioCurrent RuleProposed Rule
No recent reverse stock split
  1. 180 days to regain compliance
  2. Possible 180-day extension to regain compliance
  3. Nasdaq initiates delisting after 360 days, but if appealed, stock remains listed during appeal process (and Nasdaq can decide after an appeal to give the company up to another 180 days from the end of the second 180-day period to regain compliance)
  1. 180 days to regain compliance
  2. Possible 180-day extension to regain compliance
  3. If not compliant after second 180-day period, Nasdaq initiates a “Delisting Determination”; even if the company appeals the Delisting Determination, stock is delisted during the appeal process
Recent reverse stock split
  1. Same as above if reverse stock split(s) within last two years at a cumulative ratio of under 250 shares to one
  2. If reverse stock split(s) at a cumulative ratio of 250 shares or more to one within the last two years, stock subject to delisting with no automatic compliance period (company may appeal and will remain listed during the pendency of the appeal)
  1. If any reverse stock split within the last year, stock subject to delisting with no automatic compliance period (company may appeal and remains listed during the pendency of the appeal)
  2. If reverse stock split(s) at a cumulative ratio of 250 shares or more to one within the last two years, stock subject to delisting with no automatic compliance period (company can appeal and will remain listed during the pendency of the appeal)

Nasdaq indicates that it believes the proposed amendment will protect investors from the heightened risks of low-priced stocks and investments in distressed companies.

This proposal comes shortly after another rule proposed by Nasdaq in July 2024 that we covered previously.2 The July proposed rule provides that if a company implements a reverse stock split to meet the Minimum Bid Price Requirement that results in failing to comply with another listing standard (e.g., minimum publicly held shares or minimum number of public stockholders), it will not be considered compliant with the minimum price rule until all deficiencies are cured. These proposed rules are expected to make it more challenging for Nasdaq-listed companies struggling with the Minimum Bid Price Requirement to remain listed.

Next Steps

The SEC has 45 days after publication of the proposal in the Federal Register to approve or disapprove the proposed rule change, unless it seeks additional time.

Footnotes

1 The proposed rule change can be found here.

2 See Dechert OnPoint, “Nasdaq Proposes Stricter Rules on Reverse Stock Splits,” available here.

 

Related Professionals

Search By:

Related Services

Subscribe to Dechert Updates