Partner New York
"If a company’s bid price drops below US$1.00 for 30 consecutive trading days, it will be considered noncompliant with the minimum bid price requirement."
Current Nasdaq Delisting Rules
Currently, under Nasdaq Rule 5550(a)(2), companies must maintain a minimum bid price of at least US$1.00 per share to remain listed on Nasdaq. If a company’s bid price drops below US$1.00 for 30 consecutive trading days, it will be considered noncompliant with the minimum bid price requirement. To regain compliance, the company must maintain a bid price of US$1.00 or more for ten consecutive trading days (or longer, at Nasdaq’s discretion).
Under Nasdaq Rule 5810(c)(2), each time the minimum bid price requirement is not met, the company is promptly notified and automatically given a period of 180 calendar days from the notification to achieve compliance (with an additional 180 days potentially available under Nasdaq Rule 5810(c)(3)(A)). After the expiration of these periods, if a company has not regained compliance, it will receive a delisting determination from Nasdaq, which the company may appeal to the Nasdaq listing qualifications hearings panel, and the hearings panel may grant up to an additional 180 days to regain compliance during this appeal process. Thus, under current Nasdaq rules, companies could remain listed for up to 540 days after a minimum bid price requirement violation before such requirement is rectified.
Proposed Changes to Current Delisting Rules
1. Suspension After 360 Days of Noncompliance
Under the proposed rule, companies that fail to regain compliance with the US$1.00 bid price requirement within the two 180-day compliance periods will be immediately suspended from trading. Securities will therefore be suspended from trading during the appeal process, with trading moving to the over-the-counter market while appeals are pending (Nasdaq has stated that “if a company was not afforded the second 180-day compliance period, the company would not be affected by this proposal and its security would not be suspended from trading on Nasdaq during an appeal to the hearings panel, if any”).
2. Immediate Delisting for Reverse Stock Splits
"Companies and stakeholders should monitor developments closely and prepare for the possibility of stricter Nasdaq enforcement to its minimum bid price requirements."
A company that effected a reverse stock split will be subject to delisting if it falls out of compliance with the minimum bid price requirement within one year of the previous reverse stock split, regardless of the ratio of the previous reverse stock split.
Implication for Companies
Companies and stakeholders should monitor developments closely and prepare for the possibility of stricter Nasdaq enforcement to its minimum bid price requirements. These amendments will likely increase the urgency for companies at risk of noncompliance to address bid price deficiencies. Companies currently relying on reverse stock splits or appeals to meet listing standards should reassess their strategies, and timing, given these proposed changes and consider proactive measures well before the end of the first 180-day period to avoid potential delisting.
Companies that are considering a reverse stock split should also consider the potential for future reverse stock splits. While a company may have been more conservative in setting a figure for a reserve stock split, this new rule may convince companies to effect a stock split with a greater ratio in order to be more certain that a second minimum bid price requirement deficiency does not occur.
For more detailed advice on how these changes could affect your business and to explore compliance strategies, please contact us.
Key contacts
Partner New York
Associate New York
