The Nasdaq and NYSE have all sorts of rules about what a company has to have in terms of total shareholders, stock price, and balance sheet ratios to get listed. Both operations also have regulations about what it takes to stay a listed company.

One of the key benchmarks is that corporations cannot trade below a dollar for too long. In most cases that period is 30 days. If a firm does not comply, it usually has some time to put together a plan to fix the trouble. In many instances that involves a reverse-split. In others the companies may put together spreadsheets and documents to predict how their business will get better thereby pulling investors into their shares.

Nortel (NT) disclosed that it is the latest company to be warned on its stock price. After a ton of bad news and a disclosure that it may file for bankruptcy, its stock trades at $.40. It can join a group of well-known corporations in the same boat including Sirius XM (SIRI), Fannie Mae (FNM), and Freddie Mac (FRE). Ford (F) and AIG (AIG) have gotten close to crossing the threshold and so have scores of listed companies which are not big household names.

The art of the reverse stock split is an astonishingly transparent game and should hardly count as a way to get a share price back into exchange compliance. A stock trading at $.80 can cut its shares by 90% and suddenly push its price to $8. Neat trick, but cheating. Although, the exchanges do not see it that way. Sun Microsystems (JAVA) is especially adroit at the practice.

The economy and stock markets are so bad off that the government and companies are constantly taking "emergency measures". Banks can hide bad assets by moving them in and out of their buildings. The Fed will lend money to almost anyone who asks.

The exchanges could get into the emergency mode all on their own. There is nothing magic about $1 share price. Some institutions won’t buy stocks which trade below $5, but almost no one will buy shares in a company which has been kicked from the NYSE to the pink sheets where it trades for a dime.

Maybe suspending that $1 minimum for a year or so would not be such a bad idea.

Douglas A. McIntyre

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