In January 2025, the Securities and Exchange Commission (SEC) approved rule changes proposed by the New York Stock Exchange (NYSE) and NYSE American that impact companies utilizing reverse stock splits to regain compliance with NYSE’s and NYSE American’s average closing price criteria and low selling price criteria, respectively, for continued listings.
NYSE Listed Company Manual (Manual) Section 802.01C has been amended to modify the application of the minimum bid-price compliance periods where a listed company takes a corporate action to achieve compliance with the requirement to maintain a $1.00 per share average closing price over a consecutive 30 trading-day period for continued listings (the Price Criteria), such as a reverse stock split, and such corporate action causes noncompliance with another listing requirement. As a result of the new rule, a company will not be deemed to have corrected the initial Price Criteria noncompliance until the company has cured any deficiency resulting from the corporate action to regain compliance.
While NYSE American rules do not have a Price Criteria requirement, NYSE Company Guide (Company Guide) Section 1003 has been amended to restrict the use of reverse stock splits where NYSE American has notified a company that its common stock has been selling for a substantial period of time at a low price per share.
New York Stock Exchange
Under Section 802.01C of the Manual, a company is out of compliance with NYSE listing criteria if the average closing price of its listed security is less than $1.00 per share over a consecutive 30 trading-day period. The company can regain compliance with the Price Criteria if, on the last trading day of any calendar month during a six-month cure period, the listed security has a closing share price of at least $1.00 and an average closing share price of at least $1.00 over the prior 30 trading-day period. If a company determines to cure the Price Criteria deficiency by a reverse stock split, it must obtain shareholder approval by no later than its next annual meeting. The Price Criteria deficiency will be cured if the price remains above $1.00 for at least 30 trading days following the split.
Section 802.01C of the Manual has been amended to provide that a company that fails to meet the Price Criteria is not eligible for any compliance period in which to cure the failure if it has effected a reverse stock split over the past one-year period or has effected one or more reverse stock splits over the prior two-year period with a cumulative ratio of 200 shares or more to one. In such case, NYSE will instead immediately commence suspension and delisting procedures. Additionally, the amendment prohibits companies from conducting a reverse stock split if it results in the company’s security becoming non-compliant with any of the continued listing requirements of Section 802.01A, such as maintaining at least 600,000 publicly held shares.
NYSE American
The Company Guide currently provides that in the case of a listed common stock selling for a substantial period of time at a low price per share, NYSE American may suspend and delist a company if such company fails to effect a reverse split of such shares within a reasonable time after being notified that NYSE American deems such action to be appropriate under all the circumstances. In its review of the question of whether it deems a reverse split of a given issue to be appropriate, NYSE American will consider all pertinent factors, including market conditions in general, the number of shares outstanding, plans which may have been formulated by management, applicable regulations of the state or country of incorporation or of any governmental agency having jurisdiction over the company, the relationship to other NYSE American policies regarding continued listing, and, in respect of securities of foreign issuers, the general practice in the country of origin of trading in low-selling price issues.
The Company Guide has been amended to add two circumstances relating to effectuating reverse stock splits under which NYSE American would immediately suspend and delist a company. First, the amendments provide that if a company has effectuated one or more reverse stock splits over the prior two-year period with a cumulative ratio of 200 shares or more to one, NYSE American would commence immediate suspension and delisting procedures. In addition, the Company Guide now provides that if a company has effectuated a reverse stock split and the effectuation of such reverse stock split results in the company’s security falling below any of the other continued listing requirements of Section 1003 of the Company Guide, NYSE American would commence immediate suspension and delisting procedures. In either case, the company would not be eligible to follow the procedures outlined in the Company Guide that might otherwise delay or prevent delisting through re-compliance plans and other conditions.
Impact on NYSE-Listed and NYSE American-Listed Companies
As a result of the rule changes, NYSE-listed and NYSE American-listed companies with low share prices will need to evaluate the potential impact of a reverse stock split on the company’s compliance with other continued listing requirements discussed above. Additionally, reverse stock splits may not be available at all to companies that have conducted stock splits recently or with large split ratios.
The implications of these recently proposed changes will, among other consequences, eliminate reverse stock splits as a viable option in many situations for regaining compliance with NYSE or NYSE American listing requirements. Companies should carefully consider the broader impact of such actions on their overall compliance status and ensure they have alternate channels for compliance if their company’s security’s bid price drops to near $1.00 (for NYSE) or is low for a prolonged time (for NYSE American) while being careful with the use of reverse stock splits to maintain compliance.
