In April, the SEC approved a Nasdaq 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.  (See this PubCo post.) The rule change modified the Nasdaq listing rules to shorten compliance periods and permit earlier delisting and enhanced review  procedures for securities in these two categories. As approved, the rule change would have been applicable for companies that first received notification of non-compliance after the date of the approval order, April 21. But, in the midst of a pandemic, was that rule change really the way to go? Apparently, Nasdaq has had some regrets.  Now, the SEC has declared immediately effective another proposed rule change to delay the implementation date to September 1, 2020.

Referring by footnote to the action Nasdaq had just taken to temporarily toll the compliance period for certain continued listing requirements (see this PubCo post), Nasdaq now acknowledges that it “does not believe it is appropriate to implement this new requirement, which would affect low priced stocks, during a time when the U.S. and global equities markets have experienced unprecedented market-wide declines as a result of the ongoing spread of the COVID-19 virus and companies face highly unusual market conditions.” As revised, Nasdaq will now implement the rule change for companies that first receive notification of noncompliance with the bid price requirement on or after September 1, 2020. A company that receives notification of non-compliance prior to that date will not be subject to the rule change.

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, Nasdaq now cautions that it may limit the number of compliance periods allowed to the company, depending on the circumstances. As permitted under current rules, Nasdaq may deny the company the second compliance period “if it does not appear to Nasdaq that it is possible for the Company to cure the deficiency.” Nasdaq advises that it may rely on this language “to deny the second compliance period to a company with a very low stock price or that has engaged in significant prior reverse stock splits, even though the company is not yet subject to the rule changes.”

Posted by Cydney Posner