On January 15, 2020, the Securities and Exchange Commission published a proposal rule of the Nasdaq Stock Market LLC (“Nasdaq”) that would modify the delisting process for certain listed companies. The proposed rule may affect companies that have conducted one or more reverse stock splits during the preceding 24 months having a cumulative ratio of 250 shares or more to one. The proposed rule would also affect the delisting process of companies with a bid price below $0.10 per share.
Currently, Nasdaq rules require that primary equity securities, preferred stocks and secondary classes of common stock maintain a minimum $1.00 bid price for continued listing. A security is considered deficient pursuant to this listing requirement if its bid price closes below $1.00 for a period of 30 consecutive trading days. A company with a bid price deficiency has 180 calendar days from notification of the deficiency to regain compliance, and under certain circumstances may be eligible for a second 180 calendar day period to regain compliance. A company generally can regain compliance with the bid price requirement by maintaining a $1.00 closing bid price for a minimum of ten consecutive trading days
While there are various ways for a company to regain compliance with the minimum $1.00 bid price requirement, the most common approach has been to conduct a reverse stock split at a ratio determined by the company. A reverse stock split generally requires the approval of the company’s shareholders and must be approved by Nasdaq.
Under the proposed changes to the Listing Rules, Nasdaq would not permit companies that have completed one or more reverse stock splits within the past two years having a cumulative exchange ratio of 250 or more to one to conduct any further reverse stock splits. In such situations, unless otherwise able to regain compliance with the minimum bid price requirement, companies would receive a Delisting Determination at the end of the 180-day compliance period. Additionally, the proposed rule would provide for the immediate issuance of a Delisting Determination with respect to securities that trade below $0.10 for a period of ten consecutive trading days ending an otherwise applicable compliance period.
In either of the aforementioned cases, a company would continue to be able to request a review of the Delisting Determination by a Hearings Panel, which could allow the company additional time to regain compliance. However, the proposed rule would also modify the Listing Rules so that if following such a panel exception and within one year of the date the company regains compliance it again fails to maintain compliance with the minimum bid price requirement, the company would not be eligible for a compliance period and a Staff Delisting Determination would be issued.
Nasdaq stated in its proposal that it believes it would be unfair to modify the rules impacting companies with securities that are already in the compliance period, and therefore proposes to implement these new rules for companies that first receive notification of non-compliance with the minimum bid price requirement after the date of the approval of these changes.
It is expected that the proposed rules will be approved by the Commission and adopted by Nasdaq within the second quarter of 2020. The proposed final amendments remain subject to change, the may be adopted in a form different than described above. Seward & Kissel will continue to monitor this proposed rule change.
If you have any questions about this proposed rule changes or any other capital markets related issues, please contact your primary relationship attorney at Seward & Kissel LLP.
