On September 30, 2026, The Nasdaq Stock Market LLC (“Nasdaq”) filed a rule change, with immediate effectiveness, with the Securities and Exchange Commission (the “SEC”) amending Listing Rule 5505 to require a minimum $4 price for every initial listing on the Nasdaq Capital Market. The amendment eliminates the “Alternative Price Requirement” in Rule 5505(a)(1)(B), which had permitted companies meeting certain net tangible asset or revenue tests to list at a closing price of $2 or $3 per share.
Background to the Rule Change
Before the amendment, a company that could not meet the standard $4 bid price could instead qualify under the Alternative Price Requirement, which permitted securities priced between $2 and $4 to list if they also met additional requirements that resulted in the security satisfying an exclusion from the definition of “penny stock” in Rule 3a51-1(g) under the Securities Exchange Act of 1934 (the “Exchange Act”).
Companies under the old rule could qualify for the Alternative Price Requirement only by satisfying both of the following conditions: (i) a minimum closing price of $3 for companies listing under the Equity or Net Income Standards, or $2 for companies listing under the Market Value of Listed Securities Standard, maintained for at least five consecutive business days before approval, and (ii) either net tangible assets of more than $2 million if operating for at least three years or more than $5 million if operating for less than three years, or average annual revenue of at least $6 million for the last three years, in each case as demonstrated on the company’s most recently filed audited financial statements dated less than 15 months before listing.
SEC Oversight
Nasdaq filed the amendment for immediate effectiveness under Section 19(b)(3)(A) of the Exchange Act and Exchange Act Rule 19b-4(f)(6), which apply to rule changes that do not significantly affect investor protection or the public interest, do not impose any significant burden on competition, and do not become operative for 30 days after filing. As a result, the rule change became effective immediately upon filing. The SEC may, however, temporarily suspend the change within 60 days of filing and institute proceedings to determine whether to approve or disapprove it.
Key Provisions and Effective Date
A single $4 standard. The $4 minimum bid price is now the only price standard for initial listing on the Nasdaq Capital Market under Rule 5505(a)(1). Nasdaq’s other initial listing requirements and financial standards under Rule 5505 are unchanged.
Companies already listed under the alternative. Because companies that originally listed under the Alternative Price Requirement remain listed, Nasdaq is retaining Listing Rule IM-5505-2, under which it will continue to monitor those companies and publish on its website a daily updated list of any that no longer meet the former net tangible asset or revenue tests and do not qualify for any other penny stock exclusion. If such a company’s securities subsequently achieve a $4 closing price for at least five consecutive business days while meeting all other initial listing criteria, it will no longer be considered as having listed under the alternative requirement. Nasdaq’s list is only an aid, and the penny stock rules continue to impose specific obligations on broker-dealers.
Transition period. The 30-day delay before the change becomes operative is intended to let companies that have taken “substantial steps” toward listing under the current rules complete the process. The filing does not define “substantial steps.”
Exchange Comparison
Citing Exchange Act Section 6(b)(5), Nasdaq states that eliminating the Alternative Price Requirement will remove initial listing requirements that may cause securities to become susceptible to manipulation, and will decrease the likelihood that a company will trade at low price levels. Nasdaq also notes that the $4 standard is consistent with the initial listing requirements of other national securities exchanges. Nasdaq originally adopted the Alternative Price Requirement to enhance competition with NYSE American LLC, the only other exchange that formerly allowed companies to list at a minimum price below $4, and which recently eliminated that alternative.
Nasdaq states that, with this amendment, its rule is aligned with the rules of other exchanges that do not allow companies to list below $4.
Practical Implications
IPO candidates and OTC-quoted companies seeking to uplist will no longer have the option to list on the Nasdaq Capital Market at a $2 or $3 price by satisfying the net tangible asset or revenue tests; all initial listings to the Nasdaq Capital Market will be required to meet a minimum $4 price.
Action Items
The SEC published notice of this change, which was effective upon filing, on October 7, 2026 (Release No. 34-106614). The change becomes operative 30 days after the filing date, on or about October 30, 2026. Companies that originally listed under the Alternative Price Requirement should check their status on the IM-5505-2 list, which Nasdaq publishes daily on its website, as a company on the list may be classified as a “penny stock” subject to the penny stock rules’ broker-dealer obligations. In addition, the public may submit comments to the rule change at the SEC’s internet comment form (https://www.sec.gov/rules/sro.shtml) or by sending an email to rule-comments@sec.gov and including file number SR-NASDAQ-2026-082 on the subject line.
This post contains general information. This post is not intended: (a) to convey or constitute legal advice on any subject matter; (b) to establish an attorney-client relationship; or (c) to be a solicitation. Also keep in mind that prior results in a legal matter do not guarantee a similar outcome in another legal matter.
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