- The Net Worth Club
- Posts
- Nasdaq Tightens Listing Standards: No More Easy Escapes for Penny Stocks
Nasdaq Tightens Listing Standards: No More Easy Escapes for Penny Stocks
New Proposal Accelerates Delisting for Companies Falling Below $1, Aims to Protect Investors and Strengthen Market Integrity
Nasdaq is tightening the reins on companies whose stocks dip below $1, a move driven by Virtu Financial’s concerns about the risks these companies pose to investors.
Virtu likened these firms to penny stocks that sneak through the cracks, despite being listed on major exchanges. Something I’ve often thought was an impressive, yet surprisingly simple rule.
How can a company simply regain compliance with simple financial engineering?
You mean you don’t actually have to create any value for shareholders, you can just do a rollback?
To counter this, Nasdaq’s new proposal accelerates delisting for companies that can't maintain the $1 minimum bid price after a grace period of not 540 days, but 360 days.
Under current Nasdaq listing standards, a company is required to maintain a closing bid price of at least $1 per share. If the company fails to satisfy the bid price requirement for a period of 30 consecutive business days, the company is promptly notified and automatically given a period of 180 calendar days from the notification to achieve compliance. Subject to certain requirements, including notifying Nasdaq of its intent to cure this deficiency, a company may be provided with a second 180-day compliance period. If not, or if the company does not resolve the bid price concern during the second compliance period, Nasdaq will issue a Delisting Determination under Rule 5810, which can be appealed to a Nasdaq Listing Qualifications Hearings Panel. That Panel can provide up to an additional 180 days to regain compliance.
In the past, struggling companies would typically just perform a reverse stock split to boost it’s share price, like trying to patch a sinking ship with duct tape.
However, under the new rules, companies that use reverse splits and still fail to comply will face swift delisting without further chances to make amends.
This proposal is part of a broader effort by Nasdaq to maintain market integrity and protect investors from the volatility and risks posed by financially distressed companies.
The exchange is setting a clear boundary: if a company repeatedly fails to meet the minimum bid price, it won’t be allowed to keep trading on Nasdaq like a ghost ship aimlessly drifting in the market.
Virtu’s petition, which highlighted the dangers of allowing these companies to remain listed, seems to have spurred Nasdaq into action.
The exchange’s response suggests that it’s no longer content with just minor adjustments; more robust measures are now on the table.
In recent years, the number of companies at risk of delisting due to low share prices has surged. With over 500 companies currently trading below $1, Nasdaq's tighter rules come at a critical time.
This initiative reflects a shift towards stricter enforcement and fewer second chances for companies that can't stay above water.
Ultimately, Nasdaq’s proposal marks a powerful shift in its approach to regulating low-priced stocks, prioritizing investor protection and market stability over leniency.
A bold move in the right direction, in my eyes, as companies are forced to create value for shareholders.
Do you think these changes will be approved? Let me know.
Happy Hunting!
