In January 2025, the Securities and Exchange Commission (SEC) approved Nasdaq Stock Market (Nasdaq) and New York Stock Exchange (NYSE) rule amendments that accelerate the delisting process for listed companies that do not maintain a $1.00 minimum share price. These rule amendments, among other things, impact companies' ability to utilize reverse stock splits to maintain minimum price requirements. By one measure, listed companies enacted 495 reverse stock splits in 2023.
Nasdaq
Under previous Nasdaq rules, if a company's share price fell below the $1.00 minimum share price threshold for 30 consecutive business days, Nasdaq would send a deficiency notice that allows the company a 180-day period to cure this deficiency. If the company failed to cure such deficiency within this 180-day period, it could still be eligible for another 180-day cure period, potentially by informing Nasdaq that the company would utilize a reverse stock split to cure the deficiency. In addition, even after this aggregate 360-day period, a company could potentially avoid delisting for another 180 days by requesting a hearing on the issue.
Under the new rules, if a company falls below the $1.00 minimum share price threshold and has enacted a reverse stock split within the past year, the company will not be eligible for any compliance periods, and Nasdaq can issue a delisting determination immediately. This rule amendment applies even if the company was above the $1.00 minimum share price threshold at the time of its prior reverse stock split. Therefore, if a company executes a reverse stock split but later falls below the $1.00 minimum share price threshold within a one-year period, Nasdaq will issue a delisting determination instead of providing for a compliance period, although the company still would be able to appeal the delisting determination, which would stay any delisting action until the completion of that appeal process.
These Nasdaq rule amendments are in addition to the rule amendments made by Nasdaq in October 2024, which limit a company’s ability to use reverse stock splits in order to exceed the $1.00 minimum share price threshold where such reverse stock split causes the company to fail a different listing requirement (for example, the reverse stock split causes the company to fall below the required numeric threshold for aggregate publicly held shares). In such a case, the company will not receive a new compliance period to cure the new deficiency that was created by the reverse stock split. This October 2024 rule was discussed in our Q4 2024 Securities & Corporate Governance Quarterly Newsletter, which can be found here.
NYSE
The amended NYSE rules are also aimed at the use of reverse stock splits in order to comply with the $1.00 minimum share price threshold. Under the NYSE rule amendments, if a listed company’s shares fall below the $1.00 minimum share price threshold and the company (i) has executed a reverse stock split within the prior one-year period or (ii) has executed 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 NYSE will commence suspension and delisting procedures immediately and the company will not be eligible for a compliance period. In addition, the NYSE adopted rule amendments that mirror the October 2024 Nasdaq rule amendments discussed above and in our Q4 2024 Securities & Corporate Governance Quarterly Newsletter, which limit a company’s ability to use reverse stock splits in order to exceed the $1.00 minimum share price threshold where such reverse stock split causes the company to fail a different listing requirement.
As a result of these rule amendments, listed companies that are considering reverse stock splits that are currently, or may in the future, be at risk for falling below the $1.00 minimum share price threshold will need to consider the impact of these new rule amendments as part of their strategy for such corporate actions.
