Issuers listed on the Nasdaq Stock Market and the New York Stock Exchange (NYSE) often conduct reverse stock splits to maintain compliance with each e

Rule Changes for Reverse Stock Splits and Minimum Share Price Com

submited by

Style Pass

2025-01-27 04:00:07

Issuers listed on the Nasdaq Stock Market and the New York Stock Exchange (NYSE) often conduct reverse stock splits to maintain compliance with each exchange’s US$1.00 minimum share price requirement. A reverse stock split typically increases the price for a share of stock by consolidating outstanding shares at a ratio selected by the issuer such that, following the reverse split, each stockholder maintains its approximate ownership percentage and overall investment value, but the issuer has fewer shares outstanding with a higher price per share. Over the past several years, Nasdaq has implemented a series of rule changes making it more difficult to use reverse stock splits to regain compliance with its minimum share price requirement and that otherwise impact the process for executing a reverse split. Recently, the NYSE proposed a new rule of its own that restricts an issuer’s ability to use a reverse split to regain compliance with its minimum share price requirement. Issuers with stock prices near or below US$1.00 per share need to understand how these rule changes may affect whether, when, and how they can implement a reverse stock split to maintain their stock exchange listings.

A Nasdaq-listed issuer’s primary equity security must maintain a minimum bid price of US$1.00. If the trading price of a primary equity security closes under US$1.00 per share for 30 consecutive business days, the issuer will generally have 180 days to regain compliance with the minimum bid price requirement. At the end of the 180-day compliance period, the issuer can be granted an additional 180-day compliance period by notifying Nasdaq of its intent to cure the deficiency, including by effecting a reverse stock split. Prior to recent rule changes, if the issuer had not cured the minimum bid price deficiency by the end of the second compliance period, it could appeal delisting of its stock by requesting a review by a hearings panel. Such a request would automatically stay any suspension or delisting action, up to an additional 180 days, pending the hearing and the expiration of any additional compliance period granted by the hearings panel following the hearing. Under the prior Nasdaq rules, it was possible for a company to be out of compliance with the bid price requirement for 540 days, or approximately 18 months, if all the possible compliance periods were exhausted.