2024-2025 Developments Regarding NYSE And Nasdaq Listing Rules (2025)

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Throughout 2024 and early 2025, the Securities andExchange Commission (SEC) has approved a variety of changes to thelisting rules of the New York Stock Exchange LLC (NYSE) and TheNasdaq Stock Market LLC (Nasdaq) relating to reverse stock splits,minimum share price requirements and related grace periods, andother matters. This memorandum summarizes the more significant ofthese changes.¹ Unless otherwise noted, all of thelisting rule changes described below have been approved by the SECand are effective.

I. Reverse Stock Splits²

NYSE³

The NYSE has changed its rules regarding reverse stock splits intwo respects. The first rule change relates to the complianceperiod applicable when an NYSE-listed company's average closingprice per share is less than $1.00 for 30 consecutive trading daysand the company engages in a reverse stock split (or other actionthat requires stockholder approval) in order to regain compliancewith the minimum share price requirement. Prior to this rulechange, any NYSE-listed company in this situation would have hadsix months from receipt of notice from the NYSE or until thecompany's next annual meeting to obtain the necessarystockholder approval (after which such company must promptlyimplement the approved action) in order to avoid the commencementof delisting proceedings. With the rule change, none of theseperiods for regaining compliance would be available, and the NYSEcan commence delisting proceedings, if the company has engaged ineither (1) a reverse stock split during the previous one-yearperiod (even if the company was in compliance with the share pricecriteria at the time of the prior reverse stock split) or (2) oneor more reverse stock splits during the previous two-year periodwith a cumulative ratio of 200 shares or more to one.

The second NYSE rule change relating to reverse stock splitsprohibits an NYSE-listed company from engaging in a reverse stocksplit if doing so results in the company's shares falling belowthe NYSE's continued listing criteria regarding sharedistribution. These criteria provide that delisting may result if(1) a company's shares are held by less than 400 stockholders,(2) the company's shares are held by less than 1,200stockholders and the average monthly trading volume of the sharesis less than 100,000 shares for the most recent 12 months, or (3)the number of publicly held shares is less than 600,000. With thisrule change, a company engaging in a reverse stock split withoutregard to this limitation will not be allowed to submit a plan toregain compliance or follow the other procedures set forth in theNYSE's listed company manual, and the NYSE would immediatelycommence delisting procedures.

Nasdaq⁴

Similar to the NYSE, Nasdaq has changed its listing rulesrelating to reverse stock splits to provide that, in the event aNasdaq-listed company's shares fail to maintain a minimum bidprice of at least $1.00 per share and the company has engaged in areverse stock split during the prior one-year period, the companywill not be eligible for the 180-day compliance period that wouldotherwise apply (even if the company was in compliance with theminimum bid price requirement at the time of the prior reversestock split) and Nasdaq can commence delisting proceedings.Notably, Nasdaq rules already provide that the compliance period isnot available if the company has engaged in one or more reversestock splits during the previous two-year period with a cumulativeratio of 250 shares or more to one.

Nasdaq has also changed its rules specific to reverse stocksplits by requiring that a Nasdaq-listed company proposing areverse stock split notify Nasdaq of the reverse stock split noless than 10 calendar days prior to the record date stockholderapproval of the reverse stock split. Previously, Nasdaq's ruleshad required five business days' notice.

II. Minimum Bid Price Requirements –Nasdaq⁵

Nasdaq has changed its listing rules relating to the minimum bidprice of listed shares in two respects. Before these changes, (1) aNasdaq-listed company whose shares failed to maintain a minimum bidprice of at least $1.00 per share was provided an automatic 180-dayperiod from the date Nasdaq notifies the company of such failure inwhich to regain compliance, (2) a Nasdaq CapitalMarkets-listed⁶ company may, subject to certainrequirements, have been eligible for a second 180-day period, and(3) Nasdaq's hearing panel had the authority to allow a companyup to an additional 180 days to regain compliance, resulting in thepossibility that a Nasdaq-listed company could be in noncompliancewith the minimum bid price requirement and continue to be listed onNasdaq for up to 540 days. Also, in general a timely request by anon-compliant company for a hearing stays the delisting proceedinguntil the hearing panels' decision.

The first Nasdaq listing rule change relating to minimum bidprice requirements provides that a hearing request will no longerstay the suspension of trading if the company has already beenafforded the second 180-day period referred to above and has failedto regain compliance.

The second Nasdaq listing rule change relating to minimum bidprice requirements is that a company out of compliance with the bidprice requirement will not be deemed to be back in compliance if ittakes action to regain compliance (such as a reverse stock split)and that action causes the company to fail to meet the numericthreshold of another listing requirement (without regard to anyother compliance period that would be available for that otherlisting requirement). For example, this can happen if a companyengages in a reverse stock split that, because the number ofoutstanding shares is reduced by the reverse stock split, causesthe company to be out of compliance with Nasdaq's listingrequirement relating to share distribution. In such a case, thecompany would be deemed out of compliance until both the seconddeficiency is cured and the company meets the bid price requirementfor a minimum of 10 consecutive trading days

III. Other Matters

Phase-In Schedules for Corporate GovernanceRequirements - Nasdaq⁷

Nasdaq has changed its rules regarding the phase-in of certainof its corporate governance requirements. In the context of initialpublic offerings, (1) the requirement that a company have oneindependent director on its nominating and compensation committeesat the time the company's shares are first listed has beenchanged to allow companies to place a director on each suchcommittee by the time the IPO closes or five business days afterfirst listing, whichever is earlier, (2) the requirement that acompany have two independent directors on its compensationcommittee at the time the company's shares are first listed hasbeen changed to allow companies to have only one independentdirector on such committee by initial listing and two independentdirectors on such committee by one year after initial listing, and(3) the requirement that a company have three independent directorson its audit committee at the time the company's shares arefirst listed has been changed to allow companies to have only oneindependent director on such committee by initial listing, twoindependent directors on such committee within 90 days of initiallisting, and three independent directors on such committee by oneyear after initial listing. Similar changes have been made toNasdaq's corporate governance rules relating tocarve-out/spin-off transactions.

Change in Primary Business Focus -NYSE⁸

The NYSE has changed its listing rules to (1) require that anylisted company that has changed its primary business focus toprovide notice thereof to the NYSE, (2) provide that the NYSE willconduct a continued listing analysis of any listed company that haschanged its primary business focus (regardless of whether thelisted company provides the required notice), and (3) give the NYSEsole discretion to subject a listed company to suspension oftrading and delisting in accordance with its procedures if thecompany has changed its primary business focus to either a new areaof business that it was not engaged in, or that was immaterial toits operations, at the time of its original listing. The NYSE'sassessment will focus on whether the NYSE would have accepted thecompany for initial listing if it had engaged in the changedbusiness at the time of initial listing and will not applyquantitative standards. It will, however, focus on other changesoccurring in connection with the business change, such as changesin management or the board, ownership, or financial structure.

Board Diversity -Nasdaq⁹

In 2021, the SEC entered an order approving Nasdaq'sdisclosure rules regarding board diversity. In light of a Federalcourt's recent vacatur of that order, Nasdaq proposed, and theSEC has approved, Nasdaq's repeal of these rules.

IV. Conclusion

A majority of the NYSE's and Nasdaq's recent listingrule changes are directed at making it more difficult for listedcompanies that are non-compliant to regain compliance or extendcompliance periods without demonstrating substantive improvement intheir circumstances. As a result, listed companies at risk ofnon-compliance or facing delisting will have fewer means at theirdisposal for regaining compliance.

Footnotes

1 Note, however, that certain rule changes applicable tospecial purpose acquisition companies (SPACs) and foreign privateissuers are not addressed in this memorandum.

2 Generally, a "reverse stock split" is aproportionate decrease in the number of shares, but not the totalvalue of shares, held by stockholders, with the ratio of sharesheld before and after the reverse stock split being determined bythe board and the reverse stock split itself usually requiringstockholder approval. Stockholders maintain the same percentage ofequity ownership as before the reverse stock split. For example, a1-for-2 reverse stock split would result in stockholders owning oneshare for every two shares owned before the reverse stocksplit.

3 See SEC Release No. 34-102201; File No.SR-NYSE-2024-48, January 15, 2025.

4 See SEC Release No. 34-102245; File No.SR-NASDAQ-2024-045, January 17, 2025, and SEC Release No.34-101693; File No. SR-NASDAQ-2024-068, November 21,2024.

5 See SEC Release No. 34-102245; File No.SR-NASDAQ-2024-045, January 17, 2025, and SEC Release No.34-101271; File No. SR-NASDAQ-2024-029, October 7,2024.

6 Nasdaq Capital Markets is one of the three tiers withinNasdaq and generally includes smaller market capitalizationcompanies. As a result, its listing requirements are generally lessstrict than the other tiers.

7 See SEC Release No. 34-100816; File No.SR-NASDAQ-2024-019, August 26, 2024.

8 See SEC Release No. 34-100585; File No.SR-NYSE-2024-21, July 24, 2024.

9 See SEC Release No. 34-102281; File No.SR-NASDAQ-2024-007, January 24, 2025, and our previous memorandumon this topic dated February 14, 2025, which can be foundhere.

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