Capital Markets Alert | May.19.2020
The SEC declared immediately effective a proposed Nasdaq rule change to delay the implementation (the “Delay Implementation”) of the previously approved Nasdaq rule change (the “April 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 1 for 250 or more shares over the prior two-year period (our previous Insight is available here). The April Rule Change modified existing Nasdaq listing rules to shorten compliance periods and permit earlier delisting and enhanced review procedures for securities in the categories set forth above. The April Rule Change originally would have been applicable for companies that first received notification of non-compliance after April 21, 2020.
However, following the Delay Implementation, the April Rule Change will be applicable for companies that first received notification of non-compliance after September 1, 2020 – a substantial change of course by Nasdaq in light of the impact of the COVID-19 pandemic, including substantial declines in stock prices across Nasdaq-listed companies. In its filing, Nasdaq notes that it “does not believe it is appropriate to implement this new requirement . . . 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.” Pursuant to the Delay Implementation, Nasdaq will now implement the April 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 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 10 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 the 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 they notify Nasdaq of their 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.
In the Delay Implementation, Nasdaq cautions that it may limit the number of compliance periods allowed to a company, depending on the circumstances. Under current rules, Nasdaq may deny the company a second compliance period if Nasdaq does not believe that it is possible for the company to cure the existing deficiency. Nasdaq states that it may deny a 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.
Until all companies are subject to the April Rule Change, Nasdaq explained that it will include a statement at the start of Nasdaq Listing Rule 5810 and Nasdaq Listing Rule 5815 indicating that they were recently amended, describing the amendment, and specifying the effective date for the April Rule Change, along with a link to the revised rules. Beginning on September 1, 2020, Nasdaq Listing Rule 5810 and Nasdaq Listing Rule 5815 will reflect the April Rule Change, but, until all companies are subject to the April Rule Change, Nasdaq will include a statement at the start of Nasdaq Listing Rule 5810 and Nasdaq Listing Rule 5815 indicating they were recently amended, describing the amendment, and specifying the effective date for the rule changes, along with a link to the rules as they existed before the amendment.
Please contact any member of Orrick’s Capital Markets group for further assistance regarding potential or anticipated bid price or other continued listing deficiencies.