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January 21, 2025

SEC Approves NYSE Proposal To Restrict Use of Reverse Stock Splits To Cure Non-Compliance With Minimum Share Price Listing Standard

Advisory

On January 15, 2025, the SEC approved, on an accelerated basis, a proposed rule change to amend Section 802.01C of the NYSE’s Listed Company Manual (Manual) to restrict the use of reverse stock splits to regain compliance with NYSE price criteria under specified circumstances.

Under Manual Section 802.01C, a listed company is considered to be below compliance standards if the average closing price of its security as reported on the consolidated tape is less than $1.00 over a consecutive 30 trading-day period (Price Criteria). Once notified of non-compliance by the NYSE, the company must bring its share price and average share price back above $1.00 within six months following receipt of such notification (assuming it notifies the NYSE of its intent to cure). The company can regain compliance at any time during the six-month cure period if on the last trading day of any calendar month the company has a closing share price of at least $1.00 and an average closing share price of at least $1.00 over the 30 trading-day period ending on that trading day. If these benchmarks have not been achieved at the end of the six-month cure period, the NYSE will initiate suspension and delisting procedures.

Notwithstanding the foregoing, Manual Section 802.01C provides that if a listed company determines to cure non-compliance with the Price Criteria by taking an action that will require shareholder approval, it must: (i) so inform the NYSE; (ii) obtain the shareholder approval by no later than its next annual meeting, and (iii) implement the action promptly thereafter. The Price Criteria will be deemed cured if the company’s closing share price promptly exceeds $1.00 per share, and the average closing price for the following 30 trading-day period remains above $1.00 per share. The NSYE noted that the action taken to cure non-compliance with the Price Criteria that is subject to shareholder approval is generally a reverse stock split.

In support of the amended rules, the NYSE observed that some companies, typically those in deep financial or operational distress, engage in a pattern of repeated reverse stock splits, rendering them inappropriate for trading on the NYSE. Under amended Section 802.01C, if a listed company’s security fails to meet the Price Criteria and the company (i) has effected a reverse stock split over the prior one-year period or (ii) 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, such company will not be eligible to defer suspension and delisting procedures for the compliance period for which it would otherwise be eligible.

In addition, amended Section 802.01C prohibits a listed company from effectuating a reverse stock split, for purposes of regaining compliance with the Price Criteria or otherwise, if such action results in the company’s security falling below the continued listing requirements of Manual Section 802.01A (Distribution Criteria for Capital or Common Stock (including Equity Investment Tracking Stock)). If a listed company effectuates a reverse stock split notwithstanding this limitation, the company would not be eligible to follow the procedures outlined in Manual Sections 802.02 and 802.03, and the NYSE would immediately commence suspension and delisting procedures.

Listed companies would still be able to seek review of a delisting determination from the Committee for Review of the Board of Directors of the Exchange as set forth in Manual Section 804.00.

© Arnold & Porter Kaye Scholer LLP 2025 All Rights Reserved. This Advisory is intended to be a general summary of the law and does not constitute legal advice. You should consult with counsel to determine applicable legal requirements in a specific fact situation.