Nasdaq is proposing a crackdown on penny stocks to make it harder to escape delisting

Nasdaq is proposing an update to its rules that would see a stock delisted if it trades below $1 for 360 days, with no room for it to appeal.

• The Nasdaq may take away the appeals process for penny stocks in danger of delisting.
• Currently, stocks can trade below $1 for 180 days, receive another 180-day window, and then appeal before delisting.
• The new rules would also make it harder for companies that have initiated reverse stock splits to avoid delisting.

Nasdaq may soon make it harder for penny stocks to avoid or delay delisting.

In a Tuesday filing, the exchange operator proposed new rules that would do away with the appeals process for stocks that trade below $1 for an extended period of time.

Under the current regime, penny stocks face delisting after trading under $1 for 180 days, but they can appeal and get a second 180-day compliance window.

After the second period, the companies can appeal to Nasdaq's hearings panel, which buys the company more time for its stock to climb above $1 before the hearing.

Hearings typically happen 30-45 days after a request, and the panel issues a decision within 30 days of the hearing, according to the Nasdaq's website.

The new proposals would effectively remove the two windows and replace them with one combined period. If the stocks can't trade above $1 for 360 days, they will be immediately delisted without the ability to appeal.

The new rules would also crack down on companies that have initiated reverse stock splits to juice their price above $1 but are still trading below that threshold a year later.

"Nasdaq believes that such behavior is often indicative of deep financial or operational distress within such companies rendering them inappropriate for trading on Nasdaq for investor protection reasons," it said in a filing.