Nasdaq (NDAQ) has filed a proposal with the SEC that would allow it to impose stricter delisting rules on so-called "penny stocks." The thinking here ...
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| | Top News  Getty Images Nasdaq (NDAQ) has filed a proposal with the SEC that would allow it to impose stricter delisting rules on so-called "penny stocks." The thinking here is that the popular exchange has become a home to hundreds of dodgy companies, and besides reputational worries, there are increasing concerns about investor protection. Last month, U.S. financial services provider Virtu Financial (VIRT) also petitioned the SEC to institute rules that would prohibit national stock exchanges from listing "high-risk" shares.
How things work: Nasdaq listing standards currently require a company's stock to maintain a minimum price of $1. If the share price dips below that level, then a compliance period of 180 days is issued to address the failure. In certain cases, a firm may receive a second 180-day compliance period, and only after that does it get a delisting determination. The latter can still be appealed at a Nasdaq hearings panel, which may grant a further 180 days for a company to regain compliance (during which time the shares are still listed).
Oftentimes, firms that receive a minimum stock price notification respond by undertaking reverse stock splits to boost their share price above $1. Under the new proposal, Nasdaq is calling for the suspension of a company's stock after 360 days of non-compliance, even if it has been given a review process by a hearings panel. Nasdaq is also looking to target companies that try to get around the minimum stock price requirement by undertaking repeated reverse stock splits.
Putting it in perspective: "Nasdaq believes that such behavior is often indicative of deep financial or operational distress within such companies rendering them inappropriate for trading on Nasdaq," the stock exchange said in a regulatory filing. According to data from Dow Jones and S&P Global, there are currently 509 stocks listed on U.S. exchanges that are trading below $1 per share, of which 421 are listed on Nasdaq. Reverse stock splits have also picked up pace this year, with 249 already recorded in the first half of 2024. (6 comments)
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