Nasdaq stock exchange intends to make rule changes that will make it harder for penny stocks to avoid delisting. The changes include an effective elimination of the appeal process and taking away the reverse stock split route from troubled companies.
Current Nasdaq rules call for the company to have its stock trade above $1 per share. If a particular stock dips below $1 and continues trading at that level for 30 days, the exchange initiates a delisting procedure.
From that point onwards, the company has 180 days to get its stock above $1. If it fails to regain compliance, it can ask for another window of 180 days. If the stock continues to trade below $1 after the second window has expired, the company can make an appeal that pauses the delisting process. It takes 60-75 days for the appeal process to conclude.
Under the new rules, Nasdaq would give companies that face delisting a period of 360 days to make their stock compliant. If the stock can’t climb above $1 after that period, it would automatically be delisted.
Companies that can’t increase the price of their shares have often turned to reverse stock split. This way, the company lowers the number of outstanding shares while ramping up the price of the stock. Nasdaq now intends to automatically delist companies that saw their stock fall below $1 and have initiated a reverse stock split during a one-year period.
“Nasdaq believes that such behavior is often indicative of deep financial or operational distress within such companies, rendering them inappropriate for trading on Nasdaq for investor protection reasons,” Nasdaq shared in a statement.