TheCorporateCounsel.net

Last week, Nasdaq posted a proposed rule change to modify the delisting process for certain stocks that fail to regain compliance with the exchange’s bid price requirement – so-called “penny stocks.” Specifically:

Nasdaq is proposing to amend Listing Rules 5810 and 5815 to provide that a company will be suspended from trading on Nasdaq if the company has been non-compliant with the $1.00 bid price requirement for more than 360 days. In addition, Nasdaq is proposing to modify the listing standards such that Nasdaq will immediately send a Delisting Determination, as defined in Rule 5805(h), without any compliance period, to any company that becomes non-compliant with the $1.00 minimum bid price requirement if the company effected a reverse stock split within the prior one-year period.

Nasdaq’s proposal states that the cumulative impact of the proposed rule change and a previous 2020 rule would be as follows:

• A company that effected a reverse stock split of any ratio will be subject to delisting if it falls out of compliance with the Bid Price Requirement within one year of the previous reverse stock split.

• A company that effected one or more reverse stock split with a cumulative ratio of 1-for-250 or higher will be subject to delisting if it falls out of compliance with the Bid Price Requirement within two years of the reverse stock split(s).

The rule comes on the heels of another Nasdaq proposal just last month that would apply to companies that use reverse stock splits to regain compliance with bid price requirements – and a new rule from last year about notice and disclosure requirements for reverse splits. (With all of these complexities, members should make sure to check out our “Stock Splits” Practice Area when navigating any splits or reverse splits.)

This blog from Cooley’s Cydney Posner says that Nasdaq’s latest proposal is at least partially responsive to a rulemaking petition that took issue with penny stocks trading on national exchanges. And this WSJ article explains why Nasdaq in particular is taking heat – with 421 penny stocks listed on Nasdaq as of last Thursday, out of the 509 total exchange-listed stocks that were trading below $1 per share. The article also says that exchange-listed companies carried out a record 495 reverse splits last year – and added another 249 in the first half of this year.

Nasdaq’s rule proposal has not yet been posted for notice on the SEC website and will need to be approved before going into effect.

– Liz Dunshee