Nasdaq's New Minimum Bid Price Rules 2024: Avoiding Delisting

On October 7, 2024, the U.S. Securities and Exchange Commission (SEC) approved Nasdaq's amendment to Rule 5810(c)(3), focusing on the minimum bid price requirement and the use of reverse stock splits.

Background

Nasdaq mandates that listed companies maintain a minimum stock price of $1 per share, as per Rule 5550(a)(2). If a company's stock trades below this threshold for 30 consecutive business days, it is deemed non-compliant. To regain compliance, companies often execute reverse stock splits, consolidating shares to boost the stock price. However, such actions can inadvertently lead to non-compliance with other listing requirements, like the number of publicly held shares or shareholders.

Previous Procedure

Under the former rules, if a reverse stock split resulted in a new compliance issue, Nasdaq granted an additional period for the company to address this new deficiency. This approach was criticized for being overly lenient, potentially undermining investor confidence by allowing extended timelines to rectify issues arising from the company's corrective measures.

Key Changes

The approved amendment introduces significant modifications:

• Simultaneous Compliance: Companies must now address both the original bid price deficiency and any new compliance issues concurrently. No additional compliance periods will be granted for deficiencies arising from actions like reverse stock splits.
• Maintaining Listing Standards: To avoid a deficiency notice, a company's stock must trade at or above $1 for 30 consecutive business days. If non-compliant, the company has 180 calendar days to achieve a minimum $1 bid price for at least 10 consecutive business days. During this time, the company must also meet other listing standards, including the minimum number of publicly held shares and total shareholders.
• No Additional Compliance Periods: If a reverse stock split leads to non-compliance with another listing requirement, the company will not receive a new compliance period. It remains non-compliant until both the new issue is resolved and the stock price meets the $1 minimum for 10 consecutive business days. Failure to address both issues within the initial compliance period may result in delisting.

Implications

These changes aim to simplify the compliance process, enhance transparency, and prevent companies from using sequential compliance periods to delay delisting. Companies must now carefully evaluate the broader impact of corrective actions, such as reverse stock splits, to ensure they do not inadvertently breach other listing requirements.

Nabu's Role in Navigating Compliance

In light of these regulatory updates, Nabu's AI-driven compliance solutions can be instrumental for companies striving to maintain adherence to Nasdaq's listing standards. Nabu automates the monitoring of compliance metrics, promptly identifying potential deficiencies across various requirements. By providing real-time insights and alerts, Nabu enables companies to proactively address issues, ensuring simultaneous compliance with all listing standards and reducing the risk of inadvertent non-compliance due to corrective actions.