On October 7, 2024, the SEC issued an order approving a Nasdaq-proposed change to Listing Rule 5810(c)(3) relating to the exchange’s minimum bid price requirement, reverse stock splits and attempts to regain minimum bid price compliance which trigger non-compliance with another listing requirement.
Under Nasdaq Rule 5550(a)(2), Nasdaq-listed companies are required to maintain a minimum bid price of at least $1 per share. If a company’s bid price remains below $1 per share for 30 consecutive trading days, Nasdaq will promptly send the company a deficiency notice. Companies that find themselves non-compliant with the minimum bid price requirement may choose to conduct reverse stock splits in order to increase a company’s stock price by consolidating outstanding shares.
The SEC approved an amendment to Nasdaq Rule 5810(c)(3) to provide that if a company effectuates a reverse stock split in an effort to regain compliance with the minimum bid price requirement, but in doing so violates another continued listing requirement, such as the number of publicly held shares or the number of public holders, then:
- the company would not be considered to have regained compliance with the minimum bid price requirement; and
- no new compliance period will be afforded for the subsequent violation.
The company would remain non-compliant with the minimum bid price requirement until both the subsequent violation is cured, and thereafter, the company maintains a $1.00 bid price for 10 consecutive business days, unless Nasdaq staff exercises its discretion to extend the 10-day period.
In addition, in August 2024, Nasdaq filed two other proposed rule changes which, if approved, would shorten the time period a company could remain listed while noncompliant with the minimum bid price requirement, and eliminate the current automatic 180-day compliance period in circumstances where a company becomes non-compliant with the minimum bid price requirement within one year of a reverse stock split.
Going forward, the changes to Rule 5810(c)(3) and the recently proposed rule changes (if approved) could limit the usefulness of a reverse stock split as a tool to regain compliance with the minimum bid price requirement.
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