Public Company Shares Trading Below $1.00 Could Face Expedited Delisting
On October 7, 2024, the U.S. Securities and Exchange Commission (SEC) approved the Nasdaq Stock Market LLC’s proposed amendment to its Listing Rule 5810(c)(3)(A), which further tightens the exchange’s restrictions on the use of reverse stock splits in connection with its minimum bid price requirement. The amended rule became effective immediately upon the SEC’s approval, and Nasdaq has updated its listing rules accordingly.
When a Nasdaq-listed company fails to meet the Minimum Bid Price Requirement[1], Nasdaq gives the company 180 calendar days to regain compliance following notification. Prior to this amendment, if a company regained compliance with the Minimum Bid Price Requirement by way of a reverse stock split and fell out of compliance with other Nasdaq listing rules (e.g., Nasdaq’s minimum share number or public holders requirements under Rules 5550 and 5450, which triggers a new deficiency process), Nasdaq would historically have granted the company an additional 180 calendar days to cure the newly created deficiency.
However, under the new amended rule, a company will not be considered to have regained compliance with the Minimum Bid Price Requirement if the company effects a reverse stock split to achieve compliance and that action results in the company’s security falling below the numeric threshold for another Nasdaq listing requirement (such as the public share number and public holders requirements mentioned above) without regard to any compliance periods otherwise available for that other listing requirement. In such event, the company will continue to be considered non-compliant under the Minimum Bid Price Requirement until both (i) the other deficiency is cured and (ii) the company meets the bid price standard for a minimum of 10 consecutive business days. If the company does not demonstrate compliance with (i) and (ii) during the compliance period(s) initially granted to the Minimum Bid Price deficiency, Nasdaq will immediately delist the company.
The amendment does not change other restrictions on reverse stock splits previously implemented by Nasdaq, including (1) advance public disclosure about an upcoming reverse stock split action and (2) if a company fails to meet the Minimum Bid Price Requirement and the company has effected one or more reverse stock splits over the prior two-year period with a cumulative ratio of 250 shares or more to one, then Nasdaq will not grant any additional compliance period and the company will be subject to immediate delisting.
Companies seeking to regain compliance with the Minimum Bid Price Requirement by effecting a reverse stock split should conduct a thorough analysis of any compliance issues so triggered and factor the shortened timeline into the decision-making process. Our team is here to help companies perform such analysis and review.
We have not yet seen whether the NYSE American will implement similar restrictions but will closely monitor the status. Please contact the authors if you have questions.
[1]One of Nasdaq’s continued listing requirement is that the company’s shares should maintain a closing bid price of no less than $1.00 per share (the Minimum Bid Price Requirement). If a company’s closing bid price is below $1.00 for thirty consecutive days, the company is in violation of the Minimum Bid Price Requirement and will receive a deficiency notice from Nasdaq.