Photo: Flickr user Julian GONG Min

Companies that want to list their stocks on the NASDAQ need to meet a pretty long list of continuing requirements. Just to name a few of them, listed companies are required to:

  • Maintain a share price over $1.00
  • Maintain a $1 million valuation for all publicly held shares
  • Have a minimum number of stockholders – as low as 300, but varies depending on the type of listing
  • Maintain a minimum amount of stockholder's equity or minimum market value of all listed securities or produce net income above a specified minimum
  • Distribute annual reports to shareholders
  • Have a majority of independent directors on the company's board
  • Have an audit committee consisting solely of independent directors
  • Adopt a code of conduct applicable to all directors, officers, and employees
  • Hold an annual meeting of shareholders
  • Disclose all "material news" – defined as information that would reasonably be expected to affect the stock's value or influence investors' decisions
  • Pay annual listing fees, which range from $32,000 to $155,000

If any of these, or any other published requirements of the NASDAQ, are not met for a period of 30 consecutive days, the exchange can start delisting procedures.

Deficiency notice
If a company is in violation of the continued listing standards for a period of 30 consecutive days, the NASDAQ sends a "deficiency notice." The most common reasons for a deficiency notice are a share price that falls below $1.00 or a market cap that falls below the stated minimum (as low as $5 million if other requirements are satisfied).

Once a deficiency notice has been sent, the company has 90 days to comply with the continued listing standards, or 180 days if the violation was for a sub-$1.00 share price. In order to be compliant, the company's share price or market cap must rise above the minimum for at least 10 consecutive days in the 90-day (or 180-day) period.

Of course, becoming compliant for violating some of the other requirements is pretty straightforward. For example, if a company receives a deficiency notice for failing to pay its listing fee, the fix is obvious -- pay the fee.

If the company fails to comply
If the conditions that triggered the deficiency notice are not met in time, the NASDAQ will then send the company a delisting letter, which must be disclosed to the public within four business days.

There is an appeal procedure that a company can use, if it feels that it doesn't deserve to be delisted or if it can regain compliance in a reasonable amount of time. Once the company receives the delisting letter, it has seven days to request a hearing with the NASDAQ listing qualification panel to present its case, which postpones the delisting process until the panel makes a decision.

Unless an appeal is filed, the company's stock is halted, and then delisted after seven days. If the appeal is rejected, the company also has the option to appeal to the SEC or in federal court. The NASDAQ gives the company an additional 15 days to do so, but begins its final delisting procedures during that time.

What happens after a company is delisted?
Keep in mind that the delisting of a company doesn't mean that the stock can't continue to trade. Delisted companies can choose to be listed on the over-the-counter (OTC) markets or on the pink sheets. There are some negative implications resulting from delisting, such as a loss of investor confidence, and potentially reduced access to capital, but it's not necessarily a death sentence. Companies can (and have) return to compliance and relist on the NASDAQ after delisting.

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