On August 6, 2024, Nasdaq filed a rule proposal1 that, if adopted, will impact the ability of companies to continue trading or, potentially, stay listed in the event of a continued inability to maintain a $1.00 closing price (the “Minimum Bid Price Requirement”).2 The comments to date have been largely supportive.
Under the current rules, if a Nasdaq company’s listed securities close below $1.00 for 30 consecutive trading days, the security will be deemed to be out of compliance with the Nasdaq Minimum Bid Price Requirement (a “Minimum Bid Price Deficiency”). A company with a Minimum Bid Price Deficiency is afforded an automatic 180-day period to cure the non-compliance.3 A company trading on the Nasdaq Capital Market, or one that transfers from Nasdaq Global Select or Global to the Capital Market, may be eligible for an additional 180-day cure period, provided the company meets all applicable initial listing standards for the Capital Market (with the exception of the Minimum Bid Price Requirement and the applicable continued listing requirement for market value of publicly held securities) and the company indicates to Nasdaq its intent to cure the Minimum Bid Price Deficiency within such period.
Companies with a Minimum Bid Price Deficiency may regain compliance at any time during the cure period(s) provided by maintaining a $1.00 closing price for 10 consecutive trading days. While some companies are able to cure a Minimum Bid Price Deficiency organically during the cure period(s), most will conduct a reverse stock split to regain compliance.4
Companies that are unable to regain compliance with the Minimum Bid Price Requirement during the second 180-day cure period will receive a delisting determination from Nasdaq. However, such companies may receive up to 180 additional days following the end of the standard cure periods by appealing Nasdaq’s delisting determination to the Nasdaq Listing Qualifications Hearings Panel (the “Hearings Panel”). During the pendency of the appeal and any additional cure period provided by the Hearings Panel, the delisting action is stayed and the company’s securities continue to trade on Nasdaq.
There are two main components to Nasdaq’s amendment proposal:
- New Rule 5815(a)(1)(B)(ii)d – the adoption of this rule would mean that a timely request for an appeal hearing will no longer stay the suspension of trading for a company that has failed to cure its Minimum Bid Price Deficiency during the second 180-day cure period provided by Rule 5810(c)(3)(A)(ii). Pursuant to this new rule, such shares would be suspended from trading on Nasdaq and would trade over the counter (“OTC”) during the pendency of the Nasdaq appeal and through any additional cure period provided by the Hearings Panel. Should the securities of a company suspended for this deficiency close over $1.00 for 10 consecutive trading days on OTC during this period, the Hearings Panel would retain discretion to reinstate trading on Nasdaq and deem the Minimum Bid Price Deficiency cured.
- Amend Rule 5810(c)(3)(A)(iv) – the amendment of this rule would mean that a company that is unable to comply with the Minimum Bid Price Requirement within one year following completion of a reverse stock split (of any ratio) would not be eligible for the cure periods otherwise provided by Rule 5810(c)(3)(A) and would be subject to immediate suspension and delisting.4
Nasdaq has stated that the purpose of the cure periods provided under their rules is to provide companies experiencing listing compliance failures due to temporary conditions impacting their business time to address those issues and regain compliance. However, Nasdaq believes that when a company is unable to cure a Minimum Bid Price Deficiency within 360 days or when a company is out of compliance with the Minimum Bid Price Requirement within one year of completing a reverse stock split, the challenges facing the company are generally severe and not temporary. Such issues are often indicative of additional listing compliance concerns or deficiencies that would also result in delisting.
For additional information regarding general listing compliance, please see the listing annexes in the Latham US IPO Guide.
NOTES
1 The proposal was published in the Federal Register on August 19, 2024, and may be approved by October 3, 2024. Note that this proposal is separate from Nasdaq’s proposal SR-NASDAQ-2024-029, filed on June 21, 2024, which would limit a company’s ability to use otherwise available cure periods for additional compliance deficiencies that occur is a result of a reverse stock split conducted to cure a Minimum Bid Price Deficiency. The SEC has designated a longer review period for this proposal.
2 Rule 5450(a)(1) (Primary Equity Security listed on the Nasdaq Global or Global Select Markets); Rule 5460(a)(3) (Preferred Stock and Secondary Classes of Common Stock listed on the Nasdaq Global or Global Select Markets); Rule 5550(a)(2) (Primary Equity Security listed on the Nasdaq Capital Market); and Rule 5555(a)(1) (Preferred Stock and Secondary Classes of Common Stock listed on the Nasdaq Capital Market).
3 Rule 5810(c)(3)(A).
4 Maintaining a $1.00 closing price for 10 consecutive trading days post-reverse split is required in order to regain compliance.
5 Nasdaq had previously adopted an amendment subjecting a company to delisting if such company experiences a Minimum Bid Price Deficiency after completing at least one reverse stock split resulting in a cumulative ratio of 250 or more shares to one over the two-year period before such non-compliance. The current proposed amendment would be in addition to the 2020 amendment and would further restrict repeated reverse stock splits.
