Nasdaq Has Hundreds of Penny Stocks. Now It's Trying to Purge Them.
Nasdaq is taking steps to purge itself of dubious companies whose shares trade below $1 each, following criticism that the exchange has become home to hundreds of risky penny stocks. From a report: [...] When a stock closes below $1 for 30 consecutive trading days, Nasdaq deems the company to be noncompliant and gives it 180 days to remedy the situation. After 180 days, if the stock hasn't climbed above $1, the company can request another 180-day grace period. At the end of that second period, the company can still get a last-minute reprieve by appealing to a Nasdaq hearings panel. The delisting is stayed while the company awaits its hearing.
Some say those rules are lax, leading to a pileup of penny stocks on Nasdaq. On Wednesday, there were 523 stocks listed on U.S. exchanges that closed below $1 per share, of which 433 were listed on Nasdaq, according to Dow Jones Market Data. By comparison, there were fewer than a dozen sub-$1 stocks in early 2021. The two proposed rule changes unveiled by Nasdaq on Thursday would tighten up some of the rules regarding sub-$1 stocks, though they don't go as far as Virtu has demanded.
Under one of the proposed changes, companies that reach the end of their second 180-day grace period wouldn't be able to postpone delisting by seeking an appeal. Instead, their shares would move to the over-the-counter market -- a sort of purgatory where companies land after being delisted -- while they await the appeal. Effectively, the rule change caps the amount of time that sub-$1 stocks can be listed on Nasdaq to roughly a year. The second proposed rule change would speed up the delisting process for companies that recently did a reverse stock split. Under the change, if a company carried out a reverse split to prop up its share price, but then its stock fell below $1 within a year, Nasdaq would immediately send the company a delisting notice. The company could still appeal and remain listed for another 180 days.
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