On January 15, 2025, the Securities and Exchange Commission (“SEC”) approved a proposed rule from the New York Stock Exchange LLC (“NYSE”) that narrows options for NYSE-listed companies seeking to regain compliance with the $1.00 price criteria for common stock (the “price criteria rule”), as previewed in our LEGALcurrents. Following this, on January 17, 2025, the SEC approved a similar rule proposed by The Nasdaq Stock Market LLC (“Nasdaq”) targeted at accelerating the delisting process for companies with securities that fail to comply with the requirement to maintain a closing bid price above $1.00 per share (the “bid price rule”).
Under the newly approved NYSE rule, if a company (i) has effected a reverse stock split in the last year or (ii) has effected one or more reverse stock splits in the last two years 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 for the company’s security. Additionally, under the newly approved NYSE 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 for the company’s securities.
As previewed in our LEGALcurrents, under the newly approved Nasdaq rule, Nasdaq will (i) automatically suspend a company’s securities from trading on Nasdaq if the company has not regained compliance with the bid price rule within 360 days, even if it is appealing to a Nasdaq Listing Qualifications Hearings Panel, and (ii) move to delist a company’s securities if it had effected a reverse stock split in the last year and the company fails to comply with the bid price rule.
For companies relying on a reverse stock split to regain compliance with the price criteria rule or the bid price rule, the newly approved rules narrow options for the ratio chosen and increases the number of factors to be considered prior to effecting a reverse stock split. Before setting a reverse stock split ratio, a company must consider the ratio of any reverse stock splits in the last two years, the likelihood the company can remain in compliance with the price criteria rule or the bid price rule for a period of at least one year, the number of publicly held shares outstanding, and the number of public holders after giving effect to the reverse stock split. The newly approved rules will narrow the options for NYSE and Nasdaq-listed companies struggling to comply with the price criteria rule or bid price rule to remain listed on the NYSE or Nasdaq. If you have any questions about the application of the price criteria rule or the bid price rule or maintaining or regaining compliance with NYSE or Nasdaq rules, please contact a member of Harter Secrest & Emery’s Securities and Capital Markets group.