Market Capitalization Rule

What Is the Market Capitalization Rule?

The market capitalization rule is a rule set by the New York Stock Exchange (NYSE) to determine a base market value for a company to keep on being listed on the exchange. The market capitalization rule states that companies must keep a base market cap of $15 million over a sequential 30-day trading period. The value requirements can change as determined by the NYSE.

Understanding the Market Capitalization Rule

The term market capitalization or market cap alludes to the market value of a company's outstanding shares. This measurement is utilized to measure a company's size; thusly, a market capitalization rule guarantees that companies must be of a certain size to stay listed on the NYSE. The market capitalization rule may likewise be called the market capitalization test.

Market cap is calculated just by duplicating a company's outstanding shares by the current market price of one common share. Since a company is addressed by X number of shares, increasing X with the per-share price addresses the total dollar value of the company. Outstanding shares allude to a company's stock currently held by all its shareholders, including share blocks held by institutional investors and restricted shares owned by the company's officers and insiders

The NYSE will normally take a gander at a company's total common stock outstanding while applying the market capitalization rule. This can incorporate treasury shares and common stock that could be issued after the conversion of one more type of outstanding equity security. The NYSE will consider securities that are, in this manner, either publicly-traded or quoted, or those that can be changed over into publicly traded or quoted securities (for example convertible bonds).

Bringing down of the Market Capitalization Rule

Due to the downturn of the global economy in 2008-2009, the NYSE briefly amended the market capitalization rule in January of 2009. The base value was decreased so that companies who are able to keep a market value of more than $15 million (down from $25 million) for 30 trading days straight would stay listed until April 22, 2009.

This noticeable whenever that the NYSE first suspended its marketing capitalization requirements for its listings. The NYSE's oversight body decided to bring down the market cap requirements after a "fundamentally higher" than normal number of companies failed to meet the market cap least in the wake of the 2008 financial crisis.

In bringing down the limit, the NYSE recognized that the "surprising market conditions" of the time were to be faulted for the sharp fall in many companies' stock prices, as opposed to issues with the actual companies.

The exchange likewise adjusted the market cap rule in March 2020 during the 2020 crisis, which brought about an extreme economic decline due to lockdown measures to forestall the spread of the virus. Many companies were at risk for being delisted at current levels thus the NYSE chose to suspend the market cap rule for companies at risk for being delisted, explicitly the 30-day requirement, until June 30, 2020.

Delisting Procedure

Assuming the NYSE chooses to delist a company due to its disappointment of the market cap test, it will tell that company recorded as a hard copy. The warning will depict the NYSE's basis for delisting and the criterion or policy under which the delisting action is being taken. The notice will likewise incorporate data about the company's rights to request a survey of this decision by the Committee of the Board of Directors of the Exchange.

To try not to be delisted, a few companies will go through a reverse split of their shares. This consolidates several shares into one and increasing the share price. For instance, on the off chance that a company executes a 1 for 10 reverse split, it could raise their share price from 50 pennies per share to five dollars per share, in which case it would never again be at risk of delisting. This strategy, nonetheless, wouldn't keep a stock from being delisted due to the market capitalization rule since the reverse split wouldn't change the total value of the firm but instead the share price of the firm.

Features

• The market capitalization rule is a base threshold criterion for a company's total market value for it to be listed and stay listed on the New York Stock Exchange (NYSE).
• In the event that the rule isn't met, the company might be delisted from the stock exchange, yet the rule can be briefly altered to meet changing market or economic conditions.
• The market capitalization rule currently remains at $15 million over a continuous 30-day trading period.