On October 10, 2024, the Securities and Exchange Commission (“SEC”) issued a notice that the New York Stock Exchange (“NYSE”) submitted a proposed rule to change the requirements for regaining compliance with its $1.00 price criteria for common stock (the “price criteria rule”). If approved by the SEC, the proposed rule would add a new complication for NYSE-listed companies seeking to regain compliance with the price criteria rule. The proposed rule from the NYSE follows close in time and substance to a newly approved rule proposed by The Nasdaq Stock Market LLC (“Nasdaq”) and an additional proposed rule, both aimed at modifying the requirements for Nasdaq-listed companies seeking to regain compliance with the bid price rule, as described in our LEGALcurrents.
Background
All NYSE-listed companies must maintain compliance with the price criteria rule, which requires a company’s average closing price to remain at or above $1.00 per share. If a company’s average closing price drops below $1.00 over a consecutive 30 trading-day period, it receives a deficiency notice from the NYSE and has six months to cure the deficiency, provided that it notifies the NYSE within 10 business days of receipt of the notification of its intent to cure the deficiency. The company can regain compliance at any time during the 6-month cure period if, on the last trading day of any calendar month during the cure period, the company has a closing share price of at least $1.00 and an average closing share price of at least $1.00 over the 30 trading-day period ending on the last trading day of that month.
Often, if a company’s stock price does not increase, it will effect a reverse stock split to regain compliance with the price criteria rule. The reverse stock split will divide the total number of outstanding shares at a certain ratio, which typically results in the company’s stock price increasing by that ratio. The reverse stock split could result in the company having fewer than the required number of publicly held shares (600,000), shareholders (400), or combination of shareholders (1,200) and average monthly trading volume (100,000 shares for the most recent 12 months) under the NYSE rules. Under the current rules, if the company includes in its notification of intent to cure that it will cure the price condition by effecting a reverse stock split which will require the approval of its shareholders, it must obtain shareholder approval by no later than its next annual meeting, and must implement the reverse stock split promptly thereafter. The price criteria rule is deemed cured if the price promptly exceeds $1.00 per share, and the price remains above $1.00 for at least the following 30 trading days.
Proposed Rule
Under the NYSE proposed rule, if a company (i) has effected a reverse stock split over the prior one-year period or (ii) has effected one or more reverse stock splits over the prior two-year period with a cumulative ratio of 200 shares or more to one, then the company will not be eligible for any compliance period specified in the price criteria rule and the NYSE will immediately commence suspension and delisting procedures with respect to the company’s security.
Additionally, under the proposed rule, if a company effects a reverse stock split that causes it to fall below another continued listing standard, the NYSE will promptly commence suspension and delisting procedures with respect to the company’s securities. The NYSE believes that the proposed rule will advance investor protection by resulting in the delisting of companies whose history of recurring inability to maintain price compliance is likely indicative of their financial instability and unsuitability for continued listing.
Proposed Rule in Context
The SEC recently approved a similar proposed rule from Nasdaq stating that, where a company violates a new listing standard when effecting a reverse stock split to attempt to cure the bid price deficiency, it will not be deemed to cure the bid price deficiency and will not be provided additional time after the 180-day compliance period to cure the deficiencies. Given the recent approval of this Nasdaq rule, it seems likely that the corresponding portion of the proposed rule from the NYSE will be approved by the SEC. As noted in our LEGALcurrents, most comments on the proposed Nasdaq rules have been supportive of the changes. The SEC recently extended its period to review the remaining proposed Nasdaq rule, perhaps to align the timing with the NYSE’s proposed rule.
A comparison of the relevant current and proposed NYSE and Nasdaq rules is included in the charts below:
| Current Rules | NYSE | Nasdaq |
| Minimum price | $1.00 | $1.00 |
| Typical minimum price compliance period | 6 months | 180 days |
| Procedures for regaining compliance with minimum price | closing share price of at least $1.00 on the last trading day of the month and an average closing share price of at least $1.00 over the last 30 trading-day period | closing bid price above $1.00 for 10 consecutive business days |
| Minimum number of publicly held shares | 600,000 | 500,000 |
| Minimum number of shareholders | 400 (or when combined with average monthly trading volume requirement, 1,200) | 400 or 300, depending on market tier |
| Compliance Period Eliminated If: | NYSE | Nasdaq |
| Reverse stock split within the past year | Yes, in proposed rule | Yes, in proposed rule |
| Cumulative reverse stock split ratio in the last two-year period exceeds threshold | Yes, proposed threshold is 200 or more to 1 | Yes, current threshold is 250 or more to 1 |
| Reverse stock split causes noncompliance with another listing standard | Yes, in proposed rule | Yes, in current rule as of October 11, 2024 |
Next Steps
The SEC is accepting comments on the proposed rule until three weeks after the notice of the proposed rule is published in the Federal Register. The SEC will determine whether to approve or disapprove the rule after that date. The SEC is also set to make a decision on the proposed rule from Nasdaq mentioned above on November 21, 2024. Given the similarities between the two sets of rules, both of which address the applicable minimum share price rules, it is possible the SEC will make its decision on the rules concurrently in November. If the proposed rule is approved, NYSE-listed companies will have less flexibility to address deficiencies with the price criteria rule and may struggle to remain listed on the NYSE. If you have any questions about the NYSE proposed rule or maintaining or regaining compliance with the rules of the NYSE or Nasdaq, please contact a member of Harter Secrest & Emery LLP’s Securities and Capital Markets group.