Deficiency notice
Also called: listing deficiency notice, Nasdaq deficiency letter, non-compliance notice, delisting notice
A letter from a stock exchange telling a listed company it no longer meets a continued listing requirement, such as the $1.00 minimum bid price, and starting a compliance period.
Last verified
What it is
Exchanges set continued listing standards covering share price, stockholders' equity or market value, the number of publicly held shares and holders, timely SEC filings, and governance such as audit committee composition. When a company falls short, the exchange sends a deficiency notice. The company must disclose it publicly, generally on a Form 8-K under Item 3.01 within four business days.
The bid price rule on Nasdaq
The most common notice in small caps concerns price. Under Nasdaq Listing Rule 5550(a)(2) (Capital Market) a company's bid must stay at or above $1.00. After 30 consecutive business days below $1.00, Nasdaq issues a notice and, under Rule 5810(c)(3)(A), the company generally has 180 calendar days to regain compliance by closing at $1.00 or more for at least 10 consecutive business days. A Capital Market company that meets other standards may get a second 180-day period. Rules in this area have been tightened in recent years, so check the current rule text.
Other deficiencies, such as a late 10-Q or 10-K, follow different timelines, usually starting with a period to submit a plan of compliance.
Worked example
Hypothetical: Company X closes below $1.00 for 30 straight business days ending March 3 and receives a notice on March 5. It files an 8-K under Item 3.01 on March 9. Its 180-day compliance period runs to about September 1. If it does not regain compliance, it may receive a delisting determination, which it can appeal to a hearings panel.
Why it matters
A deficiency notice starts a clock. Common responses include a reverse split to lift the price, or a plan to restore equity, which often involves raising capital. If the company fails to cure, the end point is delisting, documented by a Form 25.
How to spot it
Watch for 8-K Item 3.01 filings and press releases mentioning "Listing Rule" and "notification letter". The Signal8 delisting screener lists companies with deficiency activity. See Nasdaq deficiency notices.
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