Current Rules

Nasdaq’s listing standards require a company’s equity securities listed on any tier of Nasdaq (Global Select, Global, or Capital Market) to maintain a closing bid price of at least $1.00 per share. A company will fail to meet this requirement if its security’s closing bid price is below $1.00 for a period of 30 consecutive trading days. Upon failing to satisfy the bid price requirement, Nasdaq rules provide for an automatic compliance period of 180 calendar days. A company achieves compliance by meeting the bid price requirement for a minimum of 10 consecutive trading days. A company listed on, or that transfers to, the Nasdaq Capital Market may be provided with a second 180-day compliance period, subject to certain requirements. If a company is not eligible for a second compliance period, or does not achieve compliance during the second compliance period, then Nasdaq will issue a delisting determination, which can be appealed to a Nasdaq hearings panel if the company chooses. The panel can give a company up to an additional 180 days from the date of the delisting determination to regain compliance. A company’s securities remain listed on Nasdaq during the pendency of an appeal to the hearings panel.

All told, under the current rules, it is possible for a company to be out of compliance with the bid price requirement for 540 days, or approximately 18 months, if all of the possible compliance periods are exhausted. Companies will often effect a reverse stock split to increase the price of their shares and regain compliance. There are two situations where the compliance periods are shortened. First, if a security has a closing bid price of $0.10 or less for 10 consecutive trading days, Nasdaq will automatically issue a delisting determination. Second, if a company fails to meet the bid price requirement and has effected one or more reverse stock splits over the preceding two years with a cumulative ratio of 250 shares or more to one, then the company becomes ineligible for any compliance period and Nasdaq will issue a delisting determination.

The Proposed Changes

Nasdaq has proposed two changes to its bid price requirements, as summarized below.

1. Suspension After 360 Days of Noncompliance

As described above, it is possible under the current rules for a company to be out of compliance with the bid price requirement for up to 540 days (consisting of two 180-day periods and a possible third 180-day period if granted by a hearings panel). In its proposal, Nasdaq states that it believes 360 days is sufficient time for a company to regain compliance and that it is not appropriate for a noncompliant company to continue trading on Nasdaq during the pendency of an appeal to the hearings panel.

Under the proposed rule, a request for hearing will no longer stay the trading suspension for a company that failed to regain compliance with the bid price requirement during a second 180-day compliance period. A company’s securities would trade on the over-the-counter market while the appeal is pending.

2. Excessive Reverse Stock Splits

In an effort to prevent companies from engaging in a pattern of reverse stock splits, Nasdaq proposes to immediately initiate the delisting process for any company that becomes noncompliant with the bid price requirement if the company has effected a reverse stock split at any time in the past year. A company faced with delisting in this situation could appeal to the Nasdaq hearings panel. In other words, Nasdaq is proposing to eliminate the automatic 180-day compliance period for companies that have conducted a reverse split in the year prior to their bid price noncompliance.

Next Steps

Both of Nasdaq’s proposed rule changes must be approved by the Securities and Exchange Commission.

¹ Alexander Osipovich, Nasdaq is Trying to Dump its Penny Stocks, Wall St. J., Aug. 9, 2024, at B1.