There is prestige associated with a company listing its shares on a major stock exchange like the Nasdaq. But in order to maintain a listing in a major market, companies must meet and maintain certain standards. These conditions are tied to a stock's market value, the size of the listing corporation and the solvency of a business. Failure to keep these requirements for an extended period of time can lead to a company being delisted from the Nasdaq exchange.
The Nasdaq is an electronic exchange where approximately 3,000 stocks trade. Instead of relying on market specialists to execute trades on behalf of investors, the Nasdaq uses computers. Many of the companies that list shares on Nasdaq are in the technology industry. However, other sectors, including energy and finance, are also represented. If a company becomes delisted from the exchange, it begins trading in the over-the-counter (OTC) markets, which adhere to less regulation than major exchanges.
A stock with a trading price that closes below $1 for 30 consecutive trading sessions can be delisted from the exchange. Prior to being delisted, however, a company with a faltering stock price receives a warning from the Nasdaq. A grace period of up to 180 days may be extended, during which the stock price must recover. Otherwise, the stock becomes delisted for being inadequately priced to trade on the Nasdaq.
A stock can be delisted from the Nasdaq if a company's shareholder equity, which represents assets relative to liabilities, drops below a certain level. In 2011, financial stock First Mariner lost its Nasdaq status after the bank's shareholder equity dropped far below the minimum requirement of $2.5 million to a negative status. The market share also plunged to below the exchange's standard. First Mariner failed in its attempt to appeal the delisting in court.
In 2008, when many publicly traded stocks shed significant market value due to the financial crisis at the time, the Nasdaq relaxed some of its listing standards. For several months, companies were not in jeopardy of being delisted from the exchange if share prices traded below the minimum requirement. The provision was established to offer companies an opportunity to address some of the larger challenges that the financial markets and the economy were facing.
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