Nasdaq Adopts Reverse Split Rule Changes
On November 1, 2023, the Securities and Exchange Commission (SEC) approved Nasdaq’s rule changes to the notification and disclosure requirements for reverse splits.
New Reverse Split Process – Notification And Disclosure Requirements
Prior to the rule change, Nasdaq did not have specific rules related to reverse splits. Rather, a reverse split fell within the general “Substitution Listing Event” category, requiring a 15-calendar day advance notice to Nasdaq.
Nasdaq has now added Listing Rule 5250(b)(4), 5250(e)(7) and IM-5250-3, which require a company conducting a reverse stock split to notify Nasdaq about certain details of the reverse stock split at least five business days (no later than 12 p.m. EST) prior to the anticipated market effective date. It must also make a public disclosure about the reverse stock split at least two business days (no later than 12 p.m. EST) prior to the anticipated market effective date.
New Listing Rule 5250(b)(4) specifies that a company must provide public notice about a reverse stock split using a Regulation FD-compliant method no later than 12 p.m. EST at least two business days prior to the proposed market effective date. As is required with all news, disclosure would need to be made to MarketWatch at least 10 minutes prior to the public announcement.
Company Event Notification Form
New Listing Rule 5250(e)(7) requires that, for a reverse stock split, the company must notify Nasdaq by submitting a complete Company Event Notification Form no later than 12 p.m. EST five business days prior to the proposed market effective date. The submission must include all information required by the form and a draft of the disclosure required by proposed Rule 5250(b)(4). Read more about this process. Information required in the notification includes but is not limited to:
- The split ratio
- New CUSIP number
- Dates of board approval
- Shareholder approval
- DTC eligibility
- A copy of the proposed Regulation FD press release
- The effective date of the reverse stock split
Any deviation from the new rule requirements would delay the processing of the reverse split.
Enforcement Provisions
Nasdaq gives this provision teeth by adding: “If a company takes legal action, such as under state law or in any other manner, to effect a reverse stock split notwithstanding its failure to timely satisfy these requirements, or Nasdaq determines that the company has provided incomplete or inaccurate information about either the timing or ratio of the reverse stock split in the public disclosure required under proposed Rule 5250(e)(4) [sic], Nasdaq will halt the stock in accordance with the procedure set forth in Equity 4, Rule 4120(a)(1), which provides Nasdaq with the authority to halt trading to permit the dissemination of material news.”
Nasdaq believes that the shorter notification period will allow a company to get its ducks in a row and have all information available by the time disclosure is made.
Regulatory Halt On Premarking Trading
Prior to the rule change, Nasdaq processed reverse stock splits overnight, with the security opening for trading at 4 a.m. EST in the premarket hours (i.e., the trading session between 4 a.m. to 9:30 a.m. EST) on a split-adjusted basis. The new rule imposes a regulatory halt, which prohibits premarket trading immediately after a reverse stock split and open trading in such securities using the Nasdaq Halt Cross process set forth in Rule 4753. The trading halt will be declared before the end of postmarket hours on the day immediately before the market effective date of a reverse stock split.
In general, Nasdaq expects to initiate the halt at or around 7:30 p.m. EST, prior to the close of postmarket trading at 8 p.m. on the day immediately before the split is effective, and resume trading at 9 a.m. EST on the day the split is effective.
Our Team Can Help You Process Your Reverse Split Under The New Rules
It’s crucial for your business entity to follow Nasdaq’s particular disclosure and notification processes when effectuating a reverse split. Failure to do so can result in significant setbacks.
Learn more about how our team can help you navigate the nature of this process by speaking with one of our lawyers at ANTHONY, LINDER & CACOMANOLIS, PLLC. Based in West Palm Beach, we offer comprehensive legal guidance rooted in more than 100 combined years of experience among our skilled attorneys. Call 877-541-3263 or complete our online contact form to schedule an initial consultation at our Florida offices today.