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We blogged last fall about an NYSE rule proposal that would make it more difficult for companies to use repeated reverse stock splits to maintain compliance with continued listing standards. The SEC designated January 15th as the date by which it would either approve or disapprove, or institute proceedings to determine whether to disapprove, the proposed rule change. In the meantime, the NYSE amended its rule filing twice – here’s Amendment No. 2. The SEC didn’t receive any additional comments.

On January 15th, the SEC approved the rule change, as modified by Amendment No. 2, on an accelerated basis. Here’s more detail:

The Exchange now proposes to amend Section 802.01C 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, the Exchange proposes that, 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 period13 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 shall not be eligible for any compliance period specified in Section 802.01C and the Exchange will immediately commence suspension and delisting procedures with respect to such security in accordance with Section 804.00 of the Manual.

The Exchange also proposes to amend Section 802.01C to prohibit a listed company from effectuating a reverse stock split, for purposes of regaining compliance with the Price Criteria or otherwise, if the effectuation of such reverse stock split results in the company’s security falling below the continued listing requirements of Section 802.01A of the Manual (Distribution Criteria for Capital or Common Stock (including Equity Investment Tracking Stock)). If a listed company effectuates a reverse stock split notwithstanding this limitation, the company would not be eligible to follow the procedures outlined in Sections 802.02 and 802.03 of the Manual and the Exchange would immediately commence suspension and delisting procedures with respect to such security in accordance with Section 804.00 of the Manual.

Note that this new rule applies to a listed company even if the company was in compliance with the Price Criteria at the time of its prior reverse stock split.

– Liz Dunshee