IBEM to avoid delisting?
Tuesday September 25 4:24 PM ET
Nasdaq Mulls Waiver of $1 Delisting Rule
By Siobhan Kennedy and Mark Weinraub
NEW YORK (Reuters) - The Nasdaq stock market is considering changing its regulations so the large number of companies whose share price has fallen below $1 may not be delisted, sources close to the situation told Reuters Tuesday.
There are around 669 Nasdaq companies now trading below $1 and many have already been delisted this year as the market fell sharply. Technology companies have been hit particularly hard.
Market watchers said a move to loosen the restrictions could be one way for Nasdaq to stabilize its market, the second-largest equities market in the world. The changes, if they occur, could lead to Nasdaq retaining the 15 percent of its companies that are currently flirting with the $1 barrier.
Nasdaq sends a company a notice telling it to shape up after it trades for less than $1 a share for 30 days in a row. If a company does not get its closing share price back above the $1 level for 10 trading days in a row during the next 90 days, Nasdaq sends it a delisting notice, which it can appeal.
An executive at a well-known technology company who asked that it not to be identified told Reuters the company had been informed by Nasdaq it would not enforce the delisting rule, even though the shares had traded below $1 for nearly 30 days.
The executive said the company's lawyers were told by Nasdaq it would waive its delisting regulations until at least the end of the year.
Another technology company, whose stock also has traded below $1 for more than 30 days, said Nasdaq officials had told it that they were reviewing the delisting regulations.
``I've talked to the Nasdaq twice this week about this and both times they've said there is going to be some kind of relief, but that they have not yet decided what it's going to be,'' a source at the company said.
A securities lawyer said Nasdaq has not strictly enforced its $1 rule on some companies he represents and whose share prices have fallen below the critical cut-off point.
The chief executive of a leading share dealing firm, who asked not to be identified, told Reuters he advised Nasdaq it needed to change its delisting rules.
``The bottom line is that test alone ... is not adequate,'' he said. ``There should be a few tests. The $1 rule doesn't really make any sense.
``The reality is there's a lot of companies that are $50 million to $250 million in market capitalization that certainly have a lot of shareholders and a lot of trading value and a lot of net capital ... and would qualify to stay on markets. But because we have this hard-and-fast $1 rule, they're subject to delisting.''
Nasdaq was ``closely monitoring these issues,'' but spokesman Scott Peterson said it was too early to make any statements.
The New York Stock Exchange (news - web sites) said it was not planning to relax its delisting rules, which are stricter than Nasdaq's.
``We look at these on a regular basis to ensure the levels of the standards, but we're not planning any special review in light of the events of the last couple of weeks,'' said Ray Pellechia, an NYSE spokesman.
TRADING PENNY STOCKS
Cromwell Coulson, head of Pink Sheets, a stock market that has no listing requirements for companies, said changes were appropriate. Many companies that have been delisted from Nasdaq have ended up being quoted on the Pink Sheets, such as speech recognition firm Learnout & Hauspie, software company AremisSoft Corp. and telecommunications firm Winstar Communication.
``In times of market instability regulators should (be) and have been flexible in standards rules governing listing requirements,'' Coulson said.
But relaxing the rules would be a bad idea because of the dangers involved with trading low-priced stocks, said Roy Smith, a professor of finance at the Stern School of Business at New York University.
``We don't want to support trading in securities of companies that are riskier than securities in general should be,'' he said. ``The penny stock sector has been where many of the so-called fraudsters have gone to manipulate markets.''
After the Sept. 11 attacks on the United States, the Securities and Exchange Commission (news - web sites), which must approve any rules changes by Nasdaq, relaxed its regulations on companies buying back their own stock.
Nasdaq would have to come up with a better reason for the listing changes than to say a slow economy ruined many of the companies that had contributed to the technology-fueled bull market of the 1990s, Smith said.
``The burden is on them to make the case for it,'' he added. |
