Last November, Nasdaq proposed a rule change that would lengthen the notification period for companies conducting reverse stock splits from five business days to 10 calendar days. The rule change became effective immediately and will become operative on January 30.

In November 2023, the US Securities and Exchange Commission approved new listing requirements for Nasdaq, including Rule 5250(e)(7). Rule 5250(e)(7) currently requires a company conducting a reverse stock split to notify Nasdaq of the stock split by submitting a Company Event Notification Form no later than 12:00 PM, ET five business days prior to the proposed market effective date of the reverse stock split.

However, Rule 10b-17(a)(2) and (b) of the Securities Exchange Act of 1934, as amended, requires that a company notify the Financial Industry Regulatory Authority no later than 10 calendar days prior to the date of record to participate in a reverse stock split, unless that notice is compliant with the procedures of a national securities exchange whose requirements are “substantially comparable” with the 10-day requirement.

Because Nasdaq’s five-business-day requirement may not be considered “substantially comparable” to the 10-calendar-day requirement under Rule 10b-17, Nasdaq has proposed the modified rule (to 10 calendar days) in order to conform to the requirements of Rule 10b-17. Nasdaq also submitted a modified Company Event Notification Form that will reflect the new notice requirement.

Takeaways

• Beginning January 30, companies seeking to effectuate reverse stock splits will be required to provide 10 calendar days’ notice by submitting a Company Event Notification Form.
• The Company Event Notification Form will continue to require disclosure of information such as the effective date of the split, the split ratio, confirmation of Depository Trust Company eligibility of the post-split Committee on Uniform Securities Identification Procedures number, and dates of board and shareholder approval.
• Failure to provide timely notice could result in a halt in stock trading.
• Nasdaq is not proposing any changes to the two-day public disclosure requirement outlined in Rule 5250(b)(4).