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New Nasdaq delisting standards and COVID-19 relief12 May 2020

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Delisting of companies with shares trading below US$1.00 and which have conducted reverse stock splits with a cumulative ratio of 250:1 or more or whose shares are trading below US$0.10.

"Nasdaq will not apply these rules retroactively—that is, the rule change will apply only to companies that are first notified of non-compliance with the US$1.00 minimum bid price standard on or after September 1, 2020."

In January of this year, Nasdaq proposed certain changes to its delisting standards, which became effective on April 21, 2020 upon approval by the Securities and Exchange Commission. Based on conversations with Nasdaq staff in April, some form of COVID-19-related relief from these new measures was expected, and Nasdaq has now provided this relief by delaying the effective date of these changes to September 1, 2020.

The new delisting standards are directed at companies with a recent history of extensive reverse stock splits or whose shares are trading below US$0.10. These new rule changes provide for immediate initiation of delisting procedures in two situations:

  • a company falls out of compliance with Nasdaq’s US$1.00 minimum bid price standard (which occurs if a company’s shares trade below US$1.00 for 30 consecutive trading days) and such company has, within the previous two years, conducted reverse stock splits with a cumulative ratio of 250:1 or more; or
  • a company is already in a cure period for failure to meet the US$1.00 minimum bid price standard and such company’s shares trade below US$0.10 for ten consecutive trading days.

A delisting determination received following the occurrence of one of these events may be appealed to the Nasdaq Hearings Panel.

Nasdaq will not apply these rules retroactively—that is, the rule change will apply only to companies that are first notified of non-compliance with the US$1.00 minimum bid price standard on or after September 1, 2020.  Any company that, as of that date, has already received a notification that it is not in compliance with the US$1.00 minimum bid price standard will be permitted to regain compliance within the prescribed 180-day cure period.

However, companies in this circumstance should be aware that, while existing Nasdaq rules provide for a second 180-day cure period for companies listed on the Nasdaq Capital Market, Nasdaq has noted in proposing this rule change that it may “deny the second compliance period to a company with a very low stock price or that has engaged in significant prior reverse stock splits, even though the company is not yet subject to the proposed rule change.”

"Nasdaq has provided additional time for companies which are already out of compliance with its US$1.00 minimum bid price or market value of publicly held shares standards to come back into compliance by suspending the relevant cure period through June 30, 2020."

Temporary COVID-19-related relief for companies out of compliance with Nasdaq’s US$1.00 minimum bid price or market value of publicly held shares standards

On April 16, 2020, Nasdaq announced that it was providing temporary relief for companies with depressed trading prices or a reduced market value of publicly held shares. In the rule filing, Nasdaq notes that recent market disruptions have caused an increase in the number of companies which are not compliant with these price-based standards, and that relief is appropriate because companies may find it difficult to remedy such deficiencies under current market conditions.

Nasdaq has therefore provided additional time for companies which are already out of compliance with its US$1.00 minimum bid price or market value of publicly held shares standards to come back into compliance by suspending the relevant cure period through June 30, 2020. Nasdaq has notified companies already in a cure period of the extended deadline to cure such deficiency.

Companies that were in compliance with the Nasdaq rules regarding minimum bid price and market value of publicly held shares on the date of this temporary rule change will continue to be notified by Nasdaq if they fall out of compliance with these standards, and companies will continue to be required to make a public announcement of any such notification, but the 180-day cure period for such companies will begin on July 1, 2020.

Please contact the WFW Capital Markets team with any questions about the application of these rules.

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