In January 2025, the Securities and Exchange Commission (SEC) approved rules proposed by the New York Stock Exchange and Nasdaq that permit the exchanges to accelerate the delisting process for companies that fail to maintain a $1 minimum share price. The SEC approvals follow a record 495 reverse splits enacted by listed companies in 2023, according to one measure. The amendments, which are now effective, limit the ability of listed companies with a history of having a low stock price to use reverse stock splits as a means to remain qualified for listing and will result in the delisting of companies with a history of recurring inability to maintain price compliance that the exchanges determine to be indicative of financial instability and unsuitability for continued listing.
The New York Stock Exchange amended Section 802.01C of its Listed Company Manual to limit the circumstances under which a listed company that fails to meet the price criteria may be provided a compliance period under Section 802.01C. Specifically, notwithstanding the general ability of a listed company to utilize a reverse stock split as a mechanism for regaining compliance with the price criteria, if a listed company’s security fails to meet the price criteria and the company (i) has effected a reverse stock split over the prior one-year period or (ii) has effected one or more reverse stock splits over the prior two-year period with a cumulative ratio of 200 shares or more to one, then the company will not be eligible for any compliance period specified in Section 802.01C, and the NYSE will immediately commence suspension and delisting procedures with respect to such security.
Nasdaq amended Nasdaq Rule 5810(c)(3)(A)(iv) to provide that if a company’s security fails to meet the minimum bid price requirement and the company has effected a reverse stock split over the prior one-year period, then the company will not be eligible for any compliance period specified in Nasdaq Rule 5810(c)(3)(A), and the listing qualifications department will issue a delisting determination under Rule 5810 with respect to that security. The amendment applies to a company even if the company was in compliance with the bid price requirement at the time of its prior reverse stock split. The Nasdaq amendments also limit extensions that let companies continue to trade while they appeal delistings. Accordingly, if a company effects a reverse stock split but its security subsequently falls out of compliance with the minimum bid requirement within a one-year period, it will be issued a delisting determination rather than being granted a compliance period. Under these circumstances, the company can appeal the delisting determination to a Hearings Panel, during which time any suspension or delisting action will be stayed.
Nasdaq Listing Rule 5810(c)(3)(A), amended in October 2024, also provides that if a company takes a corporate action, such as a reverse stock split, to regain compliance with the minimum bid price requirement, and that action causes the company to fall below the numeric threshold for another Nasdaq listing requirement (e.g., having at least 500,000 publicly held shares for a company listed on the Nasdaq Capital Market), the company will not be granted a compliance period for the new deficiency. Instead, the company must cure both deficiencies within the compliance period(s) applicable to the bid price deficiency. If compliance is not restored, Nasdaq will issue a delisting determination, and no additional compliance periods will be available.
Given these recent rule changes, companies that have effected a reverse stock split in the past, have volatile share prices or have prices trading below or at reasonable risk of falling below $1.00 per share should review their public disclosure risk factors and update to reflect the new Nasdaq or NYSE rules and potential delisting risks. Companies planning for a reverse stock split should consider the new rules regarding multiple reverse stock splits within a one-year period in considering the ratio at which the reverse stock split should be effected.
The post New Nasdaq and NYSE Delisting Rules Restrict Use of Reverse Stock Splits appeared first on Public Company Advisory Blog.