The SEC has approved a previously proposed Nasdaq rule change to expedite delisting of securities with a closing bid price at or below $0.10 for 10 consecutive trading days during any bid price compliance period and 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.
For context, Nasdaq’s current continued listing rules require a minimum bid price of at least $1.00 for primary equity securities, preferred stocks, and secondary classes of common stock. If a security’s bid price closes below $1.00 for a period of 30 consecutive business days, it is considered deficient and Nasdaq will issue a notification. A company then generally 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 such 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 the market value of publicly held shares requirement for continued listing, along with all other applicable standards for initial listing (other than the bid price requirement) on The Nasdaq Capital Market and notifies Nasdaq of its intent to cure the bid price deficiency. The result is a total compliance period to cure a bid price deficiency of up to 360 calendar days.
However, Nasdaq believes that a company facing more serious issues should not be able to avail itself of such an extended compliance period. Nasdaq specifically focused on situations where securities have a bid price at or below $0.10 (i.e., very low) or where the company has completed reverse stock splits when considered cumulatively over the prior two-year period, have resulted in a ratio of 1-for-250 or more shares, but still fails to satisfy the bid price requirement—likely situations that are not temporary in Nasdaq’s view. In addition, these companies often become subject to delisting for other reasons during the compliance periods. Nasdaq also indicated that, in its experience, these companies often seek capital in highly dilutive transactions and are potentially susceptive to market manipulation, among other negative potential scenarios.
Nasdaq is modifying its continued listing rules address its concern and accelerate delisting in certain instances. With respect to securities with closing bid prices of $0.10 or less, a company in any bid price compliance period (the security has already traded below $1.00 for 30 consecutive business days) will receive a delisting determination from the Nasdaq Staff if the security has a closing bid price of $0.10 or less for a period of 10 consecutive trading days, ending any otherwise applicable compliance period. Further, 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 of 1-for-250 shares, the company will not be able to avail itself of any bid price compliance periods under the continued listing rules. Rather, Nasdaq will require the issuance of a delisting determination from the Nasdaq Staff.
In both instances, in accordance with other applicable Nasdaq rules, the company could request review of the delisting determination by a Hearings Panel, which could grant the company up to an additional 180 days from the delisting determination to regain compliance. However, the rule also modifies Nasdaq’s continued listing standards such that following such a Hearings Panel exception, the company would be subject to the procedures applicable to a company with recurring deficiencies under Nasdaq Rule 5815(d)(4)(B). Therefore, if within one year of the date a company regained compliance, the company again fails to maintain compliance with the bid price requirement, the company will be ineligible for a compliance period and instead will be issued a delisting determination from the Nasdaq Staff, which could be appealed to the Hearings Panel.
Companies that first receive notification of non-compliance after April 21, 2020, will be subject to the rule change, but companies that have already received notification prior to such date will be permitted to rely on the existing rule.
Please contact any member of Orrick's Capital Markets group further assistance regarding potential or anticipated bid price or other continued listing deficiencies.