On October 7, 2024, the Securities and Exchange Commission (“SEC”) approved a proposed rule from The Nasdaq Stock Market LLC (“Nasdaq”) that narrows options for Nasdaq-listed companies seeking to regain compliance with the $1 minimum bid price rule, as previewed in our LEGALcurrents.
Under the newly approved rule, if a company effects a reverse stock split to regain compliance with the bid price rule and as a result falls below the numerical threshold of another listing standard (such as the minimum number of holders or number of publicly held shares), the company will not be deemed to cure the bid price deficiency. The company will continue to be noncompliant with the bid price rule and the other listing standard until both deficiencies are cured. Nasdaq will not provide additional time after the original 180-day compliance period for the company to cure the deficiencies. If the company does not resolve both deficiencies, the Nasdaq staff will issue a delisting letter. The new rule is immediately effective.
For companies relying on a reverse stock split to regain compliance with the bid price rule, the newly approved rule narrows options for the ratio chosen for the reverse stock split but does not drop an impassable roadblock in the company’s path to compliance. Before setting the reverse stock split ratio, the company must consider the number of publicly held shares outstanding and the number of holders after giving effect to the reverse stock split.
The SEC may have given a brief reprieve to some Nasdaq-listed companies, as the SEC recently extended the period by which it will approve, disapprove, or initiate proceedings about the other bid price rule proposal from Nasdaq this summer (the “Do Not Pass Go Rule”). A decision from the SEC on the Do Not Pass Go Rule is expected by November 21, 2024. Under that proposal, as outlined in our LEGALcurrents, Nasdaq would automatically (i) 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. During this extended review period, the SEC indicates it will continue to consider the Do Not Pass Go Rule and the comments received. Unlike the recently approved rule, the Do Not Pass Go Rule has not received universally supportive comments. Some commenters are urging Nasdaq to go further to eliminate the trading of low-priced stocks. Conversely, one commenter questioned whether the ratio of the reverse stock split should be taken into account when determining to automatically delist a company that had completed a reverse stock split in the last year – a provision not contemplated in the current version of the Do Not Pass Go Rule. We cannot predict whether Nasdaq will amend or withdraw the proposed rule or whether the SEC will ultimately approve the Do Not Pass Go Rule.
The newly approved rule will narrow the options for Nasdaq-listed companies struggling to comply with the bid price rule to remain listed on Nasdaq. If you have any questions about the application of the bid price rule or maintaining or regaining compliance with Nasdaq’s rules, please contact a member of Harter Secrest & Emery’s Securities and Capital Markets group.