According to a document released on its official website on Thursday (August 8th), the Nasdaq Stock Exchange has proposed to modify its rules regarding low-priced stocks, implementing a faster and stricter delisting process for non compliant companies.
According to the rules, Nasdaq requires stocks listed on its exchange to maintain a closing price of at least $1. When a stock closes below $1 for 30 consecutive trading days, Nasdaq considers it a "penny stock" and does not meet the listing criteria.
In the Hong Kong stock market, if a stock's price is below 1 Hong Kong dollar, it is referred to as a "fairy stock" by market participants, where "fairy" refers to "cents"; Low priced stocks with a stock price of less than $1 in the US stock market are called "penny stocks".
Under current rules, Nasdaq will give it up to 180 trading days to remedy and regain compliance. If the price does not rise above $1 within these 180 days, the company involved has the right to apply for a second grace period of 180 days.
This means that low-priced stocks can avoid being delisted for at least a year. At the end of the second 180 day grace period, if the stock price remains below $1, the company may also appeal to the Nasdaq hearing panel, which will suspend the delisting process until a hearing is held.
Nasdaq has announced two proposed rule changes that may accelerate the delisting process of low-priced stocks:
1、 If the company's stock price remains below $1 for 360 consecutive trading days, even during the appeal stage to the hearing panel, the stock will still be suspended from trading by Nasdaq and transferred to the over-the-counter (OTC) market. This means that a grace period of 360 days will become a rigid constraint.
2、 If a company raises its stock price through a merger, but its stock price still falls below $1 within one year, Nasdaq will immediately issue a delisting notice to such companies. The company can still appeal and continue to be listed for trading within 180 days.
Nasdaq stated in the filing that the exchange has observed some companies engaging in multiple stock mergers. "Nasdaq believes that such behavior typically indicates that these companies have underlying financial problems or operational difficulties. In order to protect investors, these companies are not suitable for trading on Nasdaq
The modifications to these two rules still require approval from the US Securities and Exchange Commission (SEC) to take effect.