Tag: reverse stock splits

Nasdaq proposes to crank up the heat on companies with shares trading below $1

In July, Virtu Financial, a financial services company and market maker, filed a rulemaking petition with the SEC, asking the SEC to adopt rules that “would prohibit National Securities Exchanges from listing high risk ‘penny stocks’ and mandate additional disclosures from issuers that would facilitate investors’ ability to assess the risks typically inherent in such stocks.” While “penny stocks” are subject to rules designed to prevent fraud and safeguard against potential market manipulation, Virtu said, exchange-listed securities are exempt from those rules “on the premise that exchange listing standards are stringent enough to weed out the riskiest issuers.” According to Virtu, “Main Street investors are being exposed to significant risk from issuers that have the imprimatur of being listed on an exchange when they are no different from penny stocks listed on the OTC market.” In recent years, Virtu contended, the number of companies at risk of delisting because of failure to meet the minimum price of $1 per share, primarily on Nasdaq, has spiked—a problem that has been exacerbated by the increasing use of reverse splits to avoid delisting, potentially resulting in problems for brokers and investors.  While, in the last several years, Nasdaq has taken some steps to address the situation, Virtu contended that “minor tweaks to Nasdaq’s listing rules are insufficient to address the problem.” To that end, in the petition, Virtu requests “a more substantial overhaul.”  Perhaps the petition gave Nasdaq a big nudge? We now have a new rule proposal from Nasdaq aimed at accelerating the delisting process for companies with shares that trade below $1. Briefly, under the proposal, a company would 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, any company that has effected a reverse stock split within the prior one-year period but becomes non-compliant with the $1.00 minimum bid price requirement would immediately be sent a Delisting Determination without any compliance period. A spokesman for Virtu told the WSJ that the proposed changes were “a step in the right direction. ‘While we are encouraged by Nasdaq’s efforts here, there remains more room for improvement across all markets,’ he said.”