Capital Markets

Nasdaq Buys Time for Weak Companies

The stock exchange suspends its listing suspension rule to prevent a wholesale delisting of companies.
Stephen TaubOctober 31, 2008

Desperate times call for less regulation? At least when it comes to Nasdaq. The massive losses suffered by a large majority of stocks — especially those of smaller companies — has led the Nasdaq exchange to suspend a listing standards rule related to market capitalization and bid price. The reason: to avoid a wholesale removal of companies that are no longer meeting Nasdaq listing requirements, and to give the sputtering companies a chance to qualify for the exchange again once the stock market stabilizes.

Citing “almost unprecedented turmoil” in world financial markets, Nasdaq says it will not send delisting warnings to companies with shares that fall below $1 for 30 consecutive days. The interim order is expected to expire on January 16, 2009.

The number of companies that have fallen below the listing threshold since last year has increased significantly, according to a Nasdaq regulatory filing. For example, Nasdaq reported that as of September 30, 2007, there were 64 securities trading below $1 on Nasdaq. By September 30, 2008, that number had increased to 227, and by October 9, there were 344 securities trading below the $1 mark. Another 300 Nasdaq-listed securities were trading at between $1 and $2.

The minimum market capitalization requirement to list on the exchange is between $1 million and $15 million, depending upon the company’s Nasdaq classification.

“Nasdaq believes that during this time there was no fundamental change in the underlying business model or prospects for many of these companies, but the decline in general investor confidence has resulted in depressed pricing for companies that otherwise remain suitable for continued listing,” Nasdaq said in the regulatory filing. “These same conditions make it difficult for companies to successfully implement a plan to regain compliance with the price or market value of publicly held shares tests.”

Meanwhile, Robert Greifeld, chief executive of Nasdaq OMX Group Inc., told Reuters last week he was prepared to suspend the rule beyond next year. “You can’t extend it forever, but maybe one or possibly two more times,” he told the wire service. This is not the first time Nasdaq has acted to loosen its rules: it suspended its delisting rule after the September 11, 2001, terrorist attacks, according to the exchange.

The New York Stock Exchange, however, does not plan to take similar action. Scott Peterson, a spokesman for the exchange, told The San Francisco Chronicle that it has “no plans to suspend our rules.” Many of the companies listed on the NYSE are larger, and often better capitalized, than many of the smaller companies listed on Nasdaq.

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