Nasdaq implements new delisting rules for companies under US$1.00 trading price
On August 6, 2024, the Nasdaq Stock Market LLC (Nasdaq) submitted a proposal to the Securities and Exchange Commission (SEC) to speed up delisting rules for companies trading below US$1.00 and restrict excessive reverse stock splits. The SEC approved this proposal on October 7, 2024, and the new rules are now in effect. This means that companies listed on Nasdaq with stocks hovering around US$1.00 have to meet stricter requirements to regain compliance and keep their listing status secure.
Two key changes have been implemented due to these new rules. First, if a company’s stock price remains below the Minimum Bid Price Requirement for 30 consecutive trading days, it is deemed non-compliant. The company then has two 180-day periods to get back in compliance, during which its securities can still trade. However, if the company fails to meet the compliance requirements within these periods, its shares will be delisted. The appeal process for a “determination of delisting” has also been altered. Previously, non-compliant securities could continue trading during an appeal, but now they are suspended from trading during the appeal process, except in cases where the company was not given the second 180-day compliance period.
The second major change is that if a company undergoes a reverse stock split and fails to comply with the Minimum Bid Price Requirement within one year of that split, the company will face immediate delisting for the non-compliant security, regardless of the split ratio. This company would not have any compliance period in this scenario.
It’s essential for Nasdaq- and NYSE-listed companies to be proactive in managing the risks of delisting. The New York Stock Exchange (NYSE) has also proposed rule changes similar to Nasdaq’s recent amendments, focusing on companies that conduct reverse stock splits. Under the proposed NYSE rule, if a listed company fails to meet the minimum closing price criteria and has executed a reverse stock split within the prior one-year period (regardless of the ratio), or has conducted reverse stock splits with a cumulative ratio of 200 shares or more to one over the prior two-year period, the company would not have any compliance period and would be immediately delisted.
Both Nasdaq- and NYSE-listed companies must take precautions to navigate these delisting risks effectively. It’s important to stay informed about these rule changes and ensure compliance to maintain listing status.
