(Reuters) – Nasdaq is proposing changes to its penny stock rules to introduce a faster and stricter delisting process for companies that do not comply with regulations, according to a document posted on the exchange operator’s website on Thursday.
Nasdaq requires companies listed on its exchange to maintain a closing price above $1. Companies that fail to meet this criterion for 30 consecutive trading days are considered non-compliant with listing standards and have 180 days to restore compliance.
Penny stocks typically sell for less than $1 per share.
If the company’s stock price does not rise above $1 after 180 trading days, it can request a second 180-day compliance window.
At the end of the second period, companies whose stock price is below $1 currently have the opportunity to appeal to the Nasdaq hearing panel, which puts the delisting process on hold pending a hearing.
However, the proposed changes could speed up the process of delisting non-compliant companies.
If the changes go through, Nasdaq will ban companies from trading on its exchanges if their stock price is below $1 after 360 trading days, effectively eliminating the possibility of appeal.
In addition, any company whose share price has fallen below $1 and that has conducted a reverse stock split in the previous year will be promptly sent a delisting decision.
Some companies – typically those in financial trouble or experiencing prolonged operating declines – have shown a pattern of repeated stock splits, according to filings Tuesday.
“Nasdaq believes that such conduct often indicates serious financial or operational difficulties of the companies in question, which make them ineligible for trading on Nasdaq for investor protection reasons,” the exchange operator said in a statement.
Companies often conduct reverse stock splits to increase the stock price by reducing the number of shares outstanding.
When asked by Reuters, Nasdaq declined to comment.
The two proposed changes to Nasdaq’s listing standards are subject to approval by the U.S. Securities and Exchange Commission.
(Reporting by Arasu Kannagi Basil in Bengaluru; Editing by Pooja Desai)
