Nasdaq giveth and Nasdaq taketh away. Having temporarily tolled the compliance period for certain continued listing requirements (see this PubCo post), Nasdaq has now proposed, and the SEC has approved, a rule change to expedite delisting (1) for securities with a closing bid price at or below $0.10 for ten consecutive trading days during any bid price compliance period and (2) for securities that have had one or more reverse stock splits with a cumulative ratio of one for 250 or more shares over the prior two-year period.
Nasdaq’s current continued listing rules require a minimum bid price of at least $1.00; if a stock’s bid price closes below $1.00 for a period of 30 consecutive business days, it is considered deficient and will receive notification from Nasdaq. The company then has 180 calendar days from notification to regain compliance by maintaining a $1.00 closing bid price for a minimum of ten consecutive business days during the 180-day compliance period. Companies listed on or transferring to the Nasdaq Capital Market may be eligible for a second 180 calendar-day period to regain compliance if they meet certain requirements, which could result in a total compliance period to cure a bid price deficiency of up to 360 calendar days.
However, some situations may require more urgent action. Nasdaq believes that one such situation is where securities have a bid price at or below $0.10 or where the company has completed reverse stock splits that cumulatively, over the prior two-year period, have resulted in a ratio of one for 250 or more shares, but still fails to satisfy the bid price requirement. (For example, a company may have effected a reverse stock split of one for 25, and then, within two years, effected a second reverse stock split of one for ten, resulting in a cumulative ratio of one for 250 shares.) In these situations, Nasdaq believes that the challenges facing the company “are generally not temporary and may be so severe that the company is not likely to regain compliance within the prescribed compliance period.” In addition, these companies often become subject to delisting for other reasons during the compliance periods. The SEC also noted that, in Nasdaq’s experience, these companies “frequently need to raise additional capital to fund their business operations and often do so by engaging in extremely dilutive transactions. Further, the low-priced stocks identified in the criteria raise concerns about their susceptibility to manipulation and the prevention of fraudulent and manipulative acts and practices as well as the ability to promote fair and orderly markets on the Exchange in such securities.”
As a result, Nasdaq is modifying its listing rules to shorten compliance periods and permit earlier delisting and enhanced review procedures for securities in these two categories. With respect to securities with very low prices, a company in any bid price compliance period (i.e., the company’s security has already traded below $1.00 for 30 consecutive business days) “will immediately receive a Staff Delisting Determination if the security has a closing bid price of $0.10 or less for a period of ten consecutive trading days, which would end any otherwise applicable compliance period.” Note that the company could, however, request review of that determination by a Hearings Panel, which could grant the company additional time to complete a reverse stock split or otherwise regain compliance.
In addition, if a company falls out of compliance with the $1.00 minimum bid price after completing reverse stock splits over the immediately preceding two years that cumulatively result in a ratio one for 250 shares, the company will not be able to avail itself of any bid price compliance periods under Rule 5810(c)(3)(A), and Nasdaq will instead require the issuance of a Staff Delisting Determination. The company could appeal the determination to a Hearings Panel, which could grant the company a 180-day exception to remain listed if it believes the company would be able to achieve and maintain compliance with the bid price requirement. Following the exception, the company would be subject to the procedures applicable to a company with recurring deficiencies (Rule 5815(d)(4)(B)).
The rule change will be applicable for companies that first receive notification of non-compliance after the date of the approval order, April 21. Companies that have already received notification will be permitted to rely on the existing rule.