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The equity market is full of uncertainties, not only for the shareholders but also for the companies. Every year, several companies launch their shares on various stock exchanges across the world for trading, but in order to stay listed, they must meet a minimum set of requirements.
Take the New York Stock Exchange (NYSE) for instance, which is among one of the important equity exchanges in the world. As per its rules, a company's stock price should remain above US$ 1 to continue to trade on the NYSE.
While the Toronto Stock Exchange (TSX) in Canada does not seem to have this rule, there are some criteria for it as well.
In general, let’s find out for how long a stock can continue to trade under the value of one dollar.
What Is The One Dollar Rule?
Stock prices are almost always fluctuating. However, on the NYSE, if a company's stock trades below the value of US$ 1 for too long, it is likely to face the risk of getting delisted from the stock exchange.
The NYSE’s rules state that a stock can trade below the value of one dollar for a consecutive period of 29 days. On Day 30, the company is required to sell its shares for US$ 1 or more per piece.
If the company fails to pull its stock price above the US$ dollar-mark by Day 30, the NYSE sends a price violation notice to the company, binding it to reply to the notice within 10 days. It is said to be mandatory that the company, in response, shares with the stock exchange a plan for improving its stock price.
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What Is The Next Step?
After a price violation notice from the NYSE, a company has two ways to go about it. It can either get delisted from the stock exchange, or it pulls its share price above the value of US$ 1.
In case the company chooses to get its shares delisted, then the NYSE can suspend the stock's trading and start the process of delisting the company from the stock market.
How Is A Company Suspended & Delisted?
Before the stock exchange suspends a stock’s trading, it is required to notify the stock’s existing and potential shareholders about the upcoming suspension.
Once the process of suspending the stock’s trading is completed, the NYSE is expected to send the information to the US Securities and Exchange Commission (SEC).
When it comes to delisting, the NYSE is supposed to inform the company that it set to be removed from its platform. It also issues a press release to explain why the company is getting delisted.
If a company feels that the delisting procedure was wrongful, it has the power to apply for a review before the SEC.
However, if the appeal is denied by the authority, then the stock’s trading is halted and the company in question is delisted from the stock exchange.
The above constitutes a preliminary view and any interest in stocks should be evaluated further from investment point of view.
