What Cos. Should Do During Stay Of Nasdaq Delisting Rule

Eight days. That is all it took for one of the most consequential Nasdaq continued listing rule changes in recent years to go from approved to stayed.

On July 22, the U.S. Securities and Exchange Commission’s Division of Trading and Markets, acting under delegated authority, approved Nasdaq’s new $5 million Market Value of Listed Securities continued listing requirement. Exchange Act Release No. 34-105971, File No. SR-NASDAQ-2026-004. The standard applies across all Nasdaq markets, and the approval order provided no delayed implementation date. Critically, and unlike most Nasdaq continued listing standards, the new requirement carries no automatic cure period. Nasdaq was expected to begin counting on July 23, which placed the thirtieth consecutive business day on Sept. 2.

For companies potentially affected by the rule, the approval immediately changed the conversation. Boards began evaluating their exposure, management teams called their lawyers, investment bankers considered financing alternatives, and companies started calculating their MVLS and counting trading days. Based on our own analysis, roughly 200 Nasdaq companies were either already below the threshold or close enough to it that this became a board-level discussion within days.

Then, on July 29, everything changed again. Cemtrex Inc. and the Small Public Company Coalition filed notices of intention to petition the Commission for review of the approval order, and five petition letters were ultimately posted. Because the order had been issued under delegated authority, those filings triggered an automatic stay under Rule 431(e) of the SEC’s Rules of Practice, and the Division advised Nasdaq that the July 22 order is stayed until the Commission orders otherwise. The SPCC filed its petition for review on Aug. 5, asking the full Commission to set aside the approval order.

In eight days, the rule had been approved, the approval order had been stayed, and the implementation clock had stopped.

Most of the commentary since has focused on the stay itself. The more consequential questions sit underneath it: what Nasdaq’s Amendment No. 1 actually substitutes for a traditional cure period, what two decades of data say about companies that fall below $5 million, and why the practical effect of the threshold may begin well before a company reaches it.

For public companies trying to understand what happens next, the most important part of this story is separating what the stay means from what it does not. It does not mean the SEC reversed itself, that the Commission determined the rule is inconsistent with the Exchange Act, or that the petitioners prevailed on the merits. The stay was procedural. But procedural does not mean insignificant.

What the Stay Actually Means

SEC rules permit an aggrieved party to seek Commission review of an action taken pursuant to delegated authority. When timely notices were filed, Rule 431(e) stayed the approval order automatically. There was no finding that the petitioners’ arguments were correct, and no rejection of Nasdaq’s rationale. The pause resulted from the SEC’s procedural framework operating as designed.

That distinction should not obscure the significance of what happened. The stay changed something enormously important for affected companies: time. Financings, strategic transactions, shareholder approvals and SEC filings all take time. Thirty business days does not.

What the Commission does with that opportunity is genuinely open. It may decline review altogether, in which case the stay dissolves and the approval stands. If it grants review, it may affirm, modify, set aside or remand the Division’s action, and it is not bound by the record as the Division framed it. Nothing in Rule 431 imposes a deadline. One question the order does not answer is what happens to the 30-business-day measurement period if the approval is affirmed. Counting was to begin on July 23 and the stay landed on July 29, so no more than five business days of the period had run. Whether that count resumes or starts over from a new effective date is not addressed, and companies will need the answer before they can calculate anything.

Why This Rule Is Different

Nasdaq’s rationale was straightforward. The exchange explained that companies sustaining very low market values may be experiencing financial distress or prolonged operational downturns, that a low market value can serve as a leading indicator of other listing compliance concerns, and that market makers may find it difficult to maintain fair and orderly markets in those securities. Those are legitimate concerns, and an exchange has real responsibilities regarding market integrity and the quality of its listed companies.

The debate, however, is increasingly about more than a threshold. It is about what happens when a company crosses it.

Under Nasdaq’s existing framework, a company that fails a continued listing requirement receives notice and an opportunity to regain compliance. For existing MVLS deficiencies, Nasdaq’s rules ordinarily provide a 180-calendar-day compliance period. If that period has been exhausted, or is otherwise unavailable, the company may request a hearing, and a timely request generally stays suspension pending a written decision by a Nasdaq Hearings Panel. Two sequential opportunities, each carrying time.

The new framework removes both. A company whose MVLS remains below $5 million for 30 consecutive business days becomes subject to suspension with no compliance period, and a hearing request does not stay that suspension.

Nasdaq did respond to concerns raised during the comment process. Amendment No. 1 allows a Hearings Panel, where appropriate, to provide up to 180 days for a company to demonstrate compliance with all applicable initial listing requirements. But that is fundamentally different from giving a company additional time to cure the continued listing deficiency it failed. Requalifying under initial listing standards may require satisfying materially more demanding financial, market value, distribution and other requirements. A Capital Market company, for instance, would need to satisfy the applicable round lot holder, public float, bid price and equity, market value or net income tests, not simply restore MVLS above $5 million. The concession is real, but it substitutes a harder standard for the one the company failed. It also leaves little to contest. A Hearings Panel reviewing a determination under the new standard is not weighing a company’s remediation plan or its prospects, because the threshold is arithmetic. Absent a computational error, there is not much for a company to argue.

That distinction matters because a cure period provides more than procedural protection. It provides an opportunity to solve a business problem. A company may be able to raise capital, restructure its balance sheet, improve operating performance or pursue a strategic transaction, but none of those solutions happen overnight.

The Data Complicates the Discussion

One of the most significant issues raised in the SPCC petition is what happens to companies after they fall below $5 million. Professor Craig M. Lewis, a former chief economist of the SEC, analyzed Nasdaq-listed companies over a 20-year period from 2006 through 2025 in an analysis submitted by the petitioner. According to the petition, Lewis identified 816 companies that would have been subject to the new requirement had it existed during that period. Of those companies, 640, or approximately 78%, subsequently recovered above $5 million at least once. The petition further states that 365 remained listed on Nasdaq as of December 2025, including 212 that were then trading above $5 million and represented approximately $22.3 billion in aggregate market capitalization.

Those figures do not resolve the policy debate. But they raise a difficult question: What does 30 consecutive business days below $5 million actually tell us about a company?

There is an important difference between companies experiencing permanent deterioration and companies experiencing temporary distress. The petition points to LightPath Technologies Inc. and Patrick Industries Inc., both of which fell below the proposed threshold before recovering. Patrick Industries ultimately grew to a market capitalization exceeding $2 billion, while LightPath later reached hundreds of millions of dollars in market capitalization. Those examples do not establish that every company falling below $5 million should remain listed indefinitely. They do demonstrate why the availability of time can matter.

The Bigger Issue May Begin Above $5 Million

There is another implication that boards should be considering now. The practical effect of a $5 million threshold may begin well before a company’s market value reaches $5 million.

This is not merely a petitioner’s theory. Multiple commenters, and the approval order itself, acknowledged that a bright-line threshold combined with a 30-business-day trigger could create an incentive for short sellers or other market participants to drive a company’s MVLS below the threshold and sustain that pressure long enough to force an automatic suspension. The petition describes a related dynamic it calls a cliff effect: investors who believe a company is moving toward a threshold that could result in suspension may choose to sell before it arrives, which further reduces market capitalization, which increases the perceived probability of suspension and encourages additional selling.

Whether that dynamic would occur in every case is impossible to know, but the possibility changes how boards should think about the rule. A smaller public company should not assume $5 million is the only number that matters. The more relevant question may be how much distance exists between today’s market capitalization and the point at which investors, lenders, bankers and other market participants begin changing their behavior because of perceived listing risk.

That turns continued listing compliance into something much larger than a legal issue. It becomes a capital planning issue. A company approaching the threshold may find financing becoming more difficult or more dilutive precisely when access to capital becomes most important. Strategic alternatives may become harder to execute, and investor perception can itself become part of the problem.

What Companies Should Be Doing Now

The most accurate answer to what happens next is also the least satisfying: We do not know. The Commission does not face a binary choice between allowing the rule to take effect exactly as approved and abandoning an additional MVLS standard altogether. The petition identifies alternatives including retaining a cure period, preserving the ordinary stay pending Hearings Panel review, extending the measurement period, applying different thresholds to different issuer risk profiles, and providing a transition period before implementation. Rule design matters, and the Commission now has an opportunity to consider those distinctions on a timeline nobody can predict.

What companies can control is what they do with the additional time. If I were sitting in a board meeting today, I would still be monitoring MVLS closely, evaluating financing opportunities, examining cash runway and balance sheet, communicating with investors and considering strategic alternatives.

I would also be scenario planning. What happens if our market capitalization falls to $15 million? To $10 million? To $7 million? What capital could realistically be raised at those levels? Does the company have sufficient shelf capacity? Would shareholder approval be required? Are there strategic investors who should be approached now rather than later?

The confusion is already visible in public filings. Some issuers have described the new standard as presently operative, while others have disclosed the July 29 notices and the resulting stay. That divergence is itself a reason for boards to confirm precisely where this stands before making decisions that depend on the answer.

The Bigger Picture

There is a larger story developing across the public markets. For years, companies understandably focused enormous attention on getting listed. Increasingly, that is only part of the equation.

Nasdaq has expanded the role of qualitative review in the initial listing process and adopted more restrictive standards affecting certain issuers. The $5 million requirement raises a parallel question at the other end of the public company lifecycle: not what it takes to get onto Nasdaq, but what it takes to remain there. Companies should also watch whether comparable proposals advance at other venues, because a common standard across principal exchanges would eliminate inter-exchange migration as an alternative.

The eight days between approval and stay are a reminder that regulatory processes do not always move in a straight line, and that procedure can matter just as much as substance. Several filings and one procedural rule changed the immediate trajectory of a Nasdaq standard that companies across the emerging growth markets were already preparing to confront.

But the stay did not eliminate the underlying issues facing smaller public companies. They still need capital, investor support and liquidity. They still need to strengthen their balance sheets and create shareholder value. Boards still have a responsibility to understand the risks that could affect their continued listing.

For that reason, I would not spend this period trying to predict exactly what the Commission will do. I would spend it preparing.

The rule may be paused. The companies potentially affected by it should not be.

Joseph M. Lucosky is the Founder and Managing Partner of Lucosky Brookman LLP, a national law firm serving emerging growth companies, public issuers, financial institutions and entrepreneurs. With extensive experience in capital markets, corporate finance, securities law and mergers and acquisitions, Joe advises clients through complex transactions and every stage of their growth.

Originally published in Law360: What Cos. Should Do During Stay Of Nasdaq Delisting Rule