In January 2025, The New York Stock Exchange (NYSE) adopted an amendment (the “Amendment”) to the reverse stock split rules and procedures in Section 802.01C of the NYSE Listed Company Manual (the “NYSE Manual”). The amendment provides that (i) a listed company that falls below the price criteria (defined below) will not be eligible for a compliance period if it has previously undergone a reverse stock split transaction in some circumstances, and (ii) a listed company may not effectuate a reverse stock split if it would result in the company falling below other continued listing requirements.
If a listed company’s security has an average closing price of less than $1.00 per share for a consecutive 30-trading-day period (the “Price Criteria”) and it has effectuated a reverse stock split during the prior 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, the listed company will not be eligible for any compliance period under Section 802.01C of the NYSE Manual. The NYSE will immediately commence suspension and delisting procedures.
The amendment precludes listed companies from regaining compliance with the Price Criteria by conducting a reverse stock split if it would result in the listed company’s security falling out of compliance with the distribution criteria for capital or common stock requirements in Section 802.01A of the NYSE Manual. The distribution criteria for capital or common stock requirements include alternative distribution criteria for continued listing based on the average monthly trading volume, number of total stockholders and number of publicly held shares. A listed company that effectuates a reverse stock split and falls out of compliance with Section 802.01A of the NYSE Manual will not be eligible to follow the procedures in Sections 802.02 and 802.03 of the NYSE Manual, which include submission of a plan to regain compliance.
The US Securities and Exchange Commission stated that it has observed listed companies that are in financial distress or experience prolonged operational downturn engage in a pattern of repeated reverse stock splits indicative of deep financial or operational distress, making them inappropriate for trading on the NYSE, and that the Amendment is consistent with investor protection concerns. A link to the amended rule can be found here.