On August 8, 2024, The Nasdaq Stock Market LLC (“Nasdaq”) posted a proposed rule on its website that, if approved by the Securities Exchange Commission (“SEC”), would amend certain listing rules to accelerate 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 (“bid price rule”).
First, the proposed rule would set a date after the failure to comply with the bid price rule when the securities would automatically be suspended from trading on Nasdaq. Under existing Nasdaq rules, a company has an initial period of 180 days to regain compliance with the bid price rule, and if it is listed on Nasdaq Capital Market, may request a second 180-day period as long as it is in compliance with Nasdaq’s other continued listing standards. After the 180- or 360-day period, a company may receive up to an additional 180 days to regain compliance if it submits and is successful in an appeal to a Nasdaq Listing Qualifications Hearings Panel (“Panel”). Together, this theoretically could result in a compliance period of 360 to 540 days. Under existing rules, the securities remain trading on Nasdaq during this period. If the proposed rule is adopted, a company’s securities will automatically be suspended 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 Panel. Instead, the securities would trade in an over-the-counter market while the appeal is pending.
Second, the proposed rule could eliminate any automatic compliance period for certain companies. The proposed rule would require Nasdaq to automatically move to delist a company’s securities if it had effected a reverse stock split in the last year and the company failed to comply with the bid price rule. Instead of the automatic 180-day compliance period, the securities would be suspended from trading on Nasdaq, even if it is appealing the delisting determination to a Panel. This would apply to a company even if it was in compliance with the bid price rule at the time of its reverse stock split.
Finally, this proposal is notable because it follows close on the heels of a rule Nasdaq proposed in July 2024, as reported in our LEGALcurrents, Proposed Nasdaq Rule Could Narrow Options for Companies with $1 Bid Price Deficiency. Under the July proposal, if a company violates a new listing standard when effecting a reverse stock split to attempt to cure a bid price deficiency, it would not be deemed to cure the bid price deficiency. Although the deadline to submit comments to the SEC was July 30, the SEC has not posted comments on its website or indicated whether the July proposal has been approved.
Altogether, this proposed rule and the proposed rule from July would make it more challenging for Nasdaq-listed companies struggling to comply with the bid price rule to remain listed on Nasdaq, even when appealing a delisting determination. If you have any questions about the proposed rule or maintaining or regaining compliance with Nasdaq’s rules, please contact a member of Harter Secrest & Emery’s Securities and Capital Markets group.