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Minimum bid price deficiency
Also called: bid price deficiency, minimum bid price rule, $1 rule, Nasdaq Rule 5550(a)(2)
The notice an exchange sends when a stock has closed below $1.00 for 30 consecutive business days, starting a deadline to get back above it.
Explanation
Nasdaq requires listed stocks to keep a minimum bid price of $1.00: Rule 5550(a)(2) on the Capital Market and Rule 5450(a)(1) on the Global and Global Select markets. After 30 consecutive business days below $1.00, Nasdaq sends a deficiency letter, which the company must disclose on an 8-K under Item 3.01 within four business days.
The company then has 180 calendar days to regain compliance, meaning a closing bid of $1.00 or more for at least 10 consecutive business days. A Capital Market company that meets the other initial listing standards can get a second 180 days if it commits to a reverse split if needed. There is no compliance period for a company that did a reverse split in the past year, or reverse splits totalling 250-for-1 or more over two years, and a stock that closes at $0.10 or less for 10 consecutive trading days during a compliance period gets an immediate delisting determination.
The NYSE has a similar rule (Section 802.01C): an average closing price below $1.00 over 30 consecutive trading days starts a six-month cure period.
Why it matters
A bid-price notice almost always leads to a reverse split, and reverse splits by cash-short companies are often followed by new offerings. It is an early step in a well-worn sequence.
How Equity Dictionary measures it
In the listing-compliance factor (5% of the score), a price under $1 scores 70 and an 8-K Item 3.01 deficiency notice in the last 12 months scores 80; the worst issue counts. Companies quoted over the counter are noted instead, since exchange bid-price rules do not apply to them.
Related terms
- Delisting notice (8-K Item 3.01): An 8-K under Item 3.01, filed within four business days when a company learns it no longer meets an exchange’s listing rules, faces delisting or is moving its listing.
- Reverse stock split: Combining existing shares into fewer, higher-priced ones, for example 1-for-10, usually to lift the share price back above an exchange minimum.
- Form 8-K: The current report a company must file within four business days of a major event, organized into numbered items.
- Toxic financing: Convertible securities whose conversion price floats with the market, so the lower the stock falls, the more shares the holder receives.
Plain-English summary for research; not legal or investment advice.