Nasdaq Introduces Stricter Delisting Rules For Penny Stocks

In a move to expedite the delisting process for non-compliant companies, Nasdaq is proposing stricter rules for penny stocks, according to a filing on the exchange operator’s website.

What Happened: At present, Nasdaq mandates that companies listed on its exchanges maintain a closing price above $1. Companies that do not meet this requirement for 30 consecutive trading days are deemed non-compliant and are given 180 days to regain compliance. If the company’s stock price does not rise above $1 after 180 trading days, it can request a second 180-day compliance window.

As per the proposed changes, Nasdaq will suspend companies from trading on its exchanges if their share price has been below $1 on the completion of 360 trading days, effectively eliminating the option to appeal. It also plans to immediately send a delisting determination to any company whose share price has fallen below $1, if it has effected a reverse stock split within the prior one-year period, Reuters reported on Friday.

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The proposed amendments are targeted at companies often seen to engage in a pattern of repeated stock splits, usually those in financial distress or experiencing prolonged operational downturns.

“Nasdaq believes that such behavior is often indicative of deep financial or operational distress within such companies rendering them inappropriate for trading on Nasdaq for investor protection reasons,” the exchange operator stated in the filing.

The two proposed changes to Nasdaq’s listing standards are subject to approval by the U.S. Securities and Exchange Commission. Nasdaq declined to comment further when approached by Reuters.

Why It Matters: The proposed changes come at a time when tech stocks are experiencing a significant rebound. On Thursday, tech stocks rallied after a five-day slump, driven by a sharper-than-expected decline in weekly jobless claims, which eased fears of imminent recession-like conditions in the U.S. The Nasdaq 100 index surged 2.4% by 10:30 a.m. in New York, putting the index on track to end a five-session losing streak.

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This story was generated using Benzinga Neuro and edited by Pooja Rajkumari