Nasdaq proposes listing rule changes related to reverse stock splits

Cooley LLP

Cooley LLP

Nasdaq has filed with the SEC a proposed rule change to establish listing standards related to notification and disclosure of reverse stock splits.  According to Nasdaq, the volume of reverse splits has increased substantially from 94 in 2020 and 31 in 2021 to 164 reverse stock splits—just as of June 23, 2023.  In most cases, Nasdaq observes, the purpose of the reverse splits is to comply with Nasdaq’s $1 minimum bid price requirement to remain on the Capital Market tier. In light of this increased volume, Nasdaq is proposing amendments to its listing rules to “enhance the ability for market participants to accurately process these events, and thereby maintain fair and orderly markets.” Failure to comply could result in a trading halt.

Under current Nasdaq listing rules, a reverse stock split is identified as a “Substitution Listing Event,” which requires notification to Nasdaq no later than 15 calendar days prior to the implementation of the event.  Although there is no requirement for public disclosure specific to reverse splits, companies are required to make “prompt disclosure” of “any material information that would reasonably be expected to affect the value of its securities or influence investors’ decisions,” which, Nasdaq states, includes reverse stock splits.

Nasdaq proposes to delete the reference to a reverse split as a “Substitution Listing Event,” and, in the proposed new listing rules, require companies conducting reverse splits to notify Nasdaq with specific details about the split at least five business days prior to the anticipated market effective date, and to make public disclosure at least two business days prior to the anticipated market effective date. 

More specifically, proposed new rule 5250(e)(7) would require companies to notify Nasdaq by submitting a completed Company Event Notification Form no later than 12:00 p.m. ET five business days prior to the proposed market effective date. The Form would include information such as the split ratio, the effective date, new CUSIP number, and the dates of board approval, shareholder approval and DTC eligibility. The Form submitted must include all the information required, as well as a draft of the public disclosure required by proposed Rule 5250(b)(4) (as discussed below). 

As proposed, Listing Rule 5250(b)(4) will require companies to provide public notice of a reverse split, using a Reg FD-compliant method, no later than 12:00 p.m. ET at least two business days prior to the proposed market effective date.  As with other news, prior notice of this disclosure must be made to the MarketWatch Department through the electronic disclosure submission system available at, except in emergency situations, as described in IM-5250-1, when notification may instead be provided by telephone or fax.  

Nasdaq provides the following timing example: “if a company desires to effect a reverse stock split with a market effective date of Monday, July 24, the company would have to provide Nasdaq with a draft of the disclosure required by proposed Rule 5250(b)(4) and a complete Company Event Notification Form by 12:00 p.m. ET on Monday, July 17, and provide the public disclosure by 12:00 p.m. ET by Thursday, July 20.”

If the company provides Nasdaq with a “timely and complete notification of a reverse stock split, which is also timely disclosed, as required by proposed Listing Rules 5250(b)(4) and 5250(e)(7), Nasdaq will process the reverse stock split for the identified market effective date.”  However, Nasdaq would not process the reverse split until all of the above requirements had been satisfied, and would halt trading in the security of any company that effected a reverse stock split without meeting the requirements set forth in Rules 5250(b)(4) and (e)(7). More specifically, in the event of an incomplete, inaccurate or untimely notification to Nasdaq or if Nasdaq determined that the company had provided incomplete or inaccurate information about either the timing or ratio of the reverse stock split in the required public disclosure, Nasdaq would halt trading in the stock.  

Nasdaq believes the proposed amendments would “provide additional transparency and clarity to companies and market participants.” The proposal would help ensure that Nasdaq has complete information to process the reverse stock split on a timely basis. And, by shortening the deadline for notification from 15 calendar days to five business days, “Nasdaq believes that companies will be able to provide complete information in a single submission of the form, which they often cannot do today,” in light of delays in receipt of required information or changes in market conditions requiring modification of the split ratio.  The proposed requirement to submit a draft of the proposed public disclosure “ensures that the information disseminated to the market by the company aligns with Nasdaq’s announcement, including the split ratio and market effective date.” Under the proposed amendments, Nasdaq would publish an announcement through the Nasdaq Trader website one and two business days prior to the market effective date, allowing market participants adequate notice to update their systems.

While these amendments pertain to notification and disclosure, Nasdaq notes that it plans to “separately submit a rule filing to adopt a new regulatory halt specific to the pre-market trading and opening of a Nasdaq-listed security undergoing a reverse stock split.”

Nasdaq requests that any comments on the proposed new listing rules be submitted within 21 days after publication of the release in the Federal Register.

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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