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NYSE Euronext's (NYX) New York Stock Exchange said Friday it temporarily will lower the minimum market-capitalization requirement for listed companies, a move that stands to benefit several companies potentially in danger of being delisted.
In the midst of global economic turmoil and a collapsing stock market, companies on both NYSE Euronext and rival Nasdaq OMX Group Inc. (NDAQ) have seen their stock prices dwindle. Already Nasdaq has temporarily suspended its minimum bid price requirement for listed companies and then recently extended the deadline on the suspension, something NYSE has chosen not to do.
The moves come at a time when delistings are surging, with the NYSE having the largest number of "for cause" delistings in five years in 2008, and Nasdaq's delisting pace nearly doubling that of 2007.
While neither the Nasdaq nor the NYSE derive a significant amount of money from listing fees - they account for less than 10% of each exchange's revenue - there remains a tug of war between the two firms as each tries to balance the push by companies to remain listed with the demands from investors and regulators for exchanges to exercise proper oversight and implementation of rules.
The NYSE has decided to lower its minimum required market cap - or the value of all of a company's outstanding shares - to $15 million through April 22. The existing regulation required the delisting of companies with a market cap of less than $25 million over 30 consecutive trading days.
The temporary cut "will enable companies of suitable size and quality to remain listed during current difficult market conditions," NYSE Regulation Chief Executive Richard Ketchum said in a press release.
The company said it chose to lower the standard rather than stop applying it altogether because it believes companies whose market caps fall below $15 million aren't suitable for continued listing.
No Appeals On Mkt Cap Rule
Among the NYSE-listed companies that currently have market caps of between $15 million and $25 million are ethanol producer Aventine Renewable Energy Holdings Inc. (AVR) and bus manufacturer Monaco Coach Corp. (MNC). (See full list below).
By comparison, stock market bellwethers Johnson & Johnson (JNJ) and AT&T Inc. (T) have market caps around $150 billion, while ExxonMobil Corp.'s (XOM) market value is nearly $400 billion.
The $15 million market-cap requirement, unlike the NYSE's minimum bid price rules, isn't automatically subject to an appeals process. Under NYSE rules, a company can be delisted if its stock prices remains below $1 for 30 consecutive trading days.
"With the dollar minimum share price rule, you have at least six months to work it out, but with the market-cap level, as soon as you go below you're out," said Scott Peterson, a spokesman for the NYSE.
More than half of the companies - including Monaco Coach - that have fallen below the $25 million market-cap level are currently in a "cure period" as they have also fallen below the $1 share price rule. These companies must submit a plan to the NYSE to regain compliance.
Data from MKM Partners showed fewer than 3% of the stocks on the NYSE Composite Index are trading at or below $1, though well-known names such as Freddie Mac (FRE), Fannie Mae (FNM) and Rite Aid Corp. (RAD) are included among the names below $1.
All told, roughly 54 companies were delisted from the NYSE in 2008, with more than half occurring in the last three months of the year. In addition, the move below $25 million in market cap pushed 29 firms off the exchange.
Peterson noted the market-cap standard change is a return to past levels, with the $25 million market capitalization requirement only coming into effect in 2004. Prior to that, the requirement also had been $15 million.
Rules Differ At Nasdaq
By comparison, 85 companies were delisted for regulatory reasons at the Nasdaq in 2008, with the majority at fault for not meeting the $1 minimum bid requirement. Like the NYSE, Nasdaq gives companies an additional period of several months to try to get back in compliance.
The exchange filed with the Securities and Exchange Commission in late October to suspend its minimum bid price and market-value requirement for publicly held shares until Jan. 16. The SEC informed Nasdaq on Dec. 20 it could extend that deadline to April 20.
The total market-capitalization requirements for Nasdaq continue to range between $35 million and $50 million depending on which of the three Nasdaq marketplaces the stocks are listed. Unlike the NYSE's $15 million requirement, however, firms aren't immediately delisted from the exchange upon breaching those levels on an averaged basis and instead get a period to regain compliance.
Among other exchanges, Deutsche Boerse AG (DB1.XE) doesn't have a minimum market cap requirement, with a representative for the exchange noting that when filing for an initial public offering, the exchange has a minimum capital raised requirement of EUR1.25 million, though if the listed security drops below that level, the company is not immediately delisted.
A representative for the Financial Services Authority, the market regulator in the U.K., said there are no rules governing minimum market cap or bid price requirements on the London Stock Exchange. The spokeswoman did say that trading in specific stocks could be suspended, permanently in cases such as excessive volatility or bankruptcy, much like both U.S. major exchanges.
NYSE-LISTED COMPANIES WITH MARKET CAPS OF $15M-$25M as of 4 p.m. EST Friday:
(Not all companies have fallen below NYSE's 30-day average price requirement)
IDT Corp. (IDT)
Gray Television Inc. (GTN)
Torch Energy Royalty Trust (TRU)
Interstate Hotels & Resorts Inc. (IHR)
Saga Communications Inc. (SGA)
Sparton Corp. (SPA)
Monaco Coach Corp. (MNC)
Libbey Inc. (LBY)
Aventine Renewable Energy Holdings Inc. (AVR)
Pzena Investment Management Inc. (PZN)
Midway Games Inc. (MWY)
Material Sciences Corp. (MSC)
FirstFed Financial Corp. (FED)
GSC Investment Corp. (GNV)
Friedman Billings Ramsey Group Inc. (FBR)
Reddy Ice Holdings Inc. (FRZ)
-By Geoffrey Rogow, Dow Jones Newswires; 201-938-5360; email@example.com
(Jacob Bunge and Kerry Grace contributed to this report.)
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