Last October Nasdaq requested that the SEC allow it to suspend the listing requirement that requires companies to have a minimum bid price of $1. Nasdaq rules classify a security as “deficient” if it has a closing bid price of less than $1 for thirty consecutive business days. Once deficient, issuers have an automatic180 day period to regain compliance by having a closing bid price of at least $1 for ten consecutive business days, and can receive an additional 180 days if all other listing requirements are met. According to the Nasdaq proposal to the SEC, by October 9, 2008 there were 344 securities trading below $1, and another 300 securities trading between $1 and $2, up from 64 securities below $1 at the end of September.

The SEC agreed with Nasdaq’s assessment that this drop in bid price was not a result of a “fundamental change in the underlying business model or prospects” for these companies, but was a result of “decline in general investor confidence,” and that these companies remain “suitable for continued listing.” Since the proposed rule change would not endanger investors or burden competition and was in the best public interest, the SEC waived the 30-day operative delay between receipt of the proposal and its implementation. The rule suspension became immediately effective on October 16, 2008 and was to expire January 16, 2009.

The effect of the rule suspension is not only to ignore share bid price in determining whether a listing deficiency exists, but also to suspend calculating the 180-day recovery period for any security that was deficient before October 16. If a company’s security was 150 days into its initial deficiency period at October 16, the company would have 30 days after January 16^th to recover or seek an additional 180-day extension.

On Dec 18, 2008, Nasdaq requested an extension of the rule suspension to April 19, 2009, noting that “extraordinary” market conditions continue. (As of January 30, 2009, there were 430 shares listed on Nasdaq for $1 or less.) Unlike the first proposal, for which the SEC waived the 30-day operative delay, there is time for the SEC to publish this rule for notice and comment. The initial proposal was published post-approval, and received one supportive comment.  One blogger suggests that the rule be permanently eliminated as a way to discourage companies from doing a reverse stock split merely to meet the listing requirement.  Comments must be submitted to the SEC referencing File Number SR-NASDAQ-2008-009 on or before February 5, 2009.

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