How Long Can a Stock Be Under $1 Before Delisting?

A stock trading for less than $1 per share, often referred to as a penny stock, signals a company facing potential challenges. While such a low price might appear to offer an accessible entry point for investors, it frequently indicates financial distress or a loss of investor confidence. Major stock exchanges, where most publicly traded companies are listed, maintain specific rules to ensure the quality and stability of the securities traded on their platforms. These rules include minimum price requirements, which are designed to protect investors and maintain market integrity. When a stock’s price consistently falls below these thresholds, it triggers a formal process that can ultimately lead to the stock being removed from the exchange.

Stock Exchange Minimum Price Requirements

Major stock exchanges, such as the New York Stock Exchange (NYSE) and Nasdaq, impose strict listing standards that companies must continuously meet to remain traded. A fundamental requirement for continued listing on these exchanges is maintaining a minimum bid price per share. For both the NYSE and Nasdaq, this threshold is $1.00 per share.

A company triggers a non-compliance notice if its stock’s bid price falls below $1.00 for 30 consecutive trading days. The exchange officially notifies the company of this deficiency.

Compliance Period and Actions

Upon receiving a deficiency notice for failing to meet the minimum bid price, a company is granted a grace period to regain compliance. Both Nasdaq and the NYSE provide an initial period of 180 calendar days for the company to address the issue. During this time, the company must demonstrate that its stock’s bid price has closed at or above $1.00 for at least 10 consecutive trading days to regain compliance.

Companies often undertake specific actions to increase their share price during this compliance period. The most common strategy is a reverse stock split. In a reverse stock split, a company reduces the number of its outstanding shares, which proportionally increases the price per share.

While a reverse stock split can immediately boost a stock’s price above the $1.00 threshold, it does not change the company’s underlying value or market capitalization. A second 180-day compliance period may be granted, extending the total compliance period.

Consequences of Failing to Meet Requirements

If a company fails to regain compliance within the allotted grace periods, the primary consequence is involuntary delisting from the major exchange. Delisting signifies the removal of the company’s shares from trading on that exchange, which can significantly impact its visibility and reputation. This process begins with the exchange issuing a delisting determination notice.

A company may appeal the delisting decision to a hearings panel, which can grant an additional period to regain compliance. Delisting can deter institutional investors, as many are restricted from holding securities not listed on major exchanges.

Trading After Delisting

Once a stock is delisted from a major exchange, it often transitions to trading on the over-the-counter (OTC) markets. These markets operate through a network of broker-dealers rather than a centralized exchange. The OTC Markets Group, which facilitates much of this trading, categorizes companies into different tiers based on their reporting and disclosure levels.

The OTCQX is the highest tier, requiring companies to meet stringent financial standards and report to the Securities and Exchange Commission (SEC). The OTCQB is known as the “venture market” and is for developing companies that report their financials to the SEC. The OTC Pink market, historically known as “Pink Sheets,” has the fewest requirements and includes a broad range of companies, some with limited or no public financial reporting. Trading can still occur on these markets, but transparency and liquidity are generally lower compared to major exchanges.

Impact on Investors

Investors holding shares of a stock that falls below $1.00 or is subsequently delisted face several practical implications. Increased volatility is common, as the stock price can fluctuate widely with less market oversight and fewer participants. Reduced liquidity becomes a significant concern, making it more challenging to buy or sell shares at desired prices due to fewer buyers and sellers and wider bid-ask spreads.

Some brokerage firms may impose restrictions on trading OTC stocks, or they might not support trading on all OTC tiers, further limiting an investor’s ability to manage their holdings. While investors still retain ownership of their shares after delisting, the value of these shares can significantly diminish, and in some cases, become worthless, especially if the company faces bankruptcy or liquidation. The overall risk associated with these investments increases substantially due to less available information and reduced regulatory oversight.