In an immediately effective rule change approved by the SEC, Nasdaq will permit a longer period of time for companies to regain compliance with Price-based Requirements under continued listing requirements by tolling the compliance periods through and including June 30, 2020. Nasdaq’s rule proposal refers to Price-based Requirements as those continued listing standards which relate to continued listing bid price and market value of publicly held shares requirements.
The Price-based Requirements applicable to any company depend on a number of factors. Nasdaq’s summary of continued listing standards (available here) suggests that Nasdaq Global Select and Nasdaq Global issuers must maintain a bid price of $1 per share and a market value of publicly held shares of $5 million to $15 million.
Nasdaq is seeing an increase in the number of companies whose securities are becoming non-compliant with the Price-based Requirements amidst the current market uncertainty and believes that relief is appropriate for the same reasons that the Commission has granted relief to its requirements. The decline in general investor confidence has resulted in depressed pricing for companies that otherwise remain suitable for continued listing. Similarly, Nasdaq believes that it is difficult for companies that are already non-compliant with these requirements to take action to regain compliance. For example, large daily market moves make it difficult for a company to predict what ratio may be required for a reverse stock split that will enable the company to achieve and maintain compliance with the bid price requirement. Similarly, it could be harmful to existing shareholders for a company to sell securities at an artificially low price, solely to regain compliance with the market value of publicly held shares requirement. Moreover, the need to develop and implement actions to address potential or actual non-compliance can draw management and board attention away from the more immediate needs of their employees and customers, as well as the communities where they operate.
Accordingly, under the approved rule Nasdaq will permit companies that are out of compliance with the Price-based Requirements additional time to regain compliance by tolling the compliance periods through and including June 30, 2020. However, throughout the tolling period, Nasdaq will continue to monitor these requirements and companies will continue to be notified about new instances of non-compliance with the Price-based Requirements in accordance with existing Nasdaq rules. Companies that are notified about non-compliance are required by Nasdaq rules to make a public announcement disclosing receipt of the notification by filing a Form 8-K, where required by SEC rules, or by issuing a press release. Starting on July 1, 2020, companies will receive the balance of any pending compliance period in effect at the start of the tolling period to come back into compliance with the applicable requirement. Similarly, companies that were in the delisting hearings process would return to that process at the same stage they were in when the tolling period began. Companies that are newly identified as non-compliant during the tolling period will have 180 days to regain compliance, beginning on July 1, 2020.