The New York Stock Exchange, or NYSE, is one of the best-known stock exchanges in the world. For a stock to qualify for trading on the NYSE, it must meet certain criteria, such as a minimum price and minimum company value. Occasionally, a stock will trade on the NYSE for less than $1, but if it remains at that level for too long, it can eventually be delisted, or removed, from the exchange. If you find a stock for that price, it might be a risky investment.
Initial Listing Standards
A company can list its stock on the NYSE in various ways, such as through an initial public offering, or IPO, or a transfer from another market, such as the over-the-counter market. When a company first lists its stock on the exchange, the NYSE requires the stock to be at least $4 a share. A stock can potentially fall to less than $1 after its initial listing, but you won’t find any stocks making their debut on the exchange at that price level.
Continued Listing Standards
After the initial listing, if a stock’s average closing price over any 30 consecutive trading days falls below $1, the stock is subject to delisting from the NYSE. This average closing price equals the sum of 30 consecutive closing prices, divided by 30. A closing price is the last trading price of a trading day. Trading occurs Monday through Friday, excluding holidays. This means that a stock can trade for less than $1 at any time, as long as its average closing price stays above $1.
Average Closing Price Example
Assume a stock hypothetically closes at $2 a share for 25 consecutive trading days then falls and closes at 90 cents a share for the next five consecutive trading days. The sum of its 30 consecutive closing prices is $54.50. Its average closing price over this period is $1.82, or $54.50 divided by 30. Because this average is above $1, the stock complies with the NYSE’s minimum price requirement for the moment. But if its price doesn’t recover, it might be kicked off the exchange.
If a company’s stock violates the minimum price requirement under the continued listing standards, the NYSE cuts it some slack. The NYSE formally notifies the company and gives it six months to bring its stock price and average closing price up above $1. This means a stock can potentially trade for less than $1 on the NYSE for several months before either regaining compliance or being delisted. Even if it regains compliance, it still might fall below $1 again.
If a stock trades on the NYSE for less than $1, the company that issued the stock might be in financial trouble. Although the NYSE requires a stock to have a $4 minimum price to initially list on the exchange, many stocks debut on the exchange at a higher price. A stock that has fallen from $4 or higher to less than $1 has lost significant value -- and probably for a reason. Always review a company’s financials to get the full story before investing.
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