What is the Market Capitalization Rule
The market capitalization rule is a rule set by the New York Stock Exchange (NYSE) to determine a minimum market value to be listed continuously. The market capitalization rule states that companies must maintain a minimum value of $25 million over 30 consecutive days to remain listed. This standard value was set in 2004. The term market capitalization or market cap refers to the market value of a company’s outstanding shares. This metric is used to measure a company’s size; therefore a market capitalization rule guarantees that companies must be of a certain size in order to remain listed on the NYSE. The market capitalization rule may also be called the market capitalization test.
BREAKING DOWN Market Capitalization Rule
The NYSE will usually look at a company’s total common stock outstanding when applying the marketing capitalization rule. This can include treasury shares and common stock that could be issued after the conversion of another type of outstanding equity security. The NYSE will consider securities that are, therefore, either publically traded or quoted, or can be converted into publically traded or quoted securities.
Lowering of the Market Cap Rule in 2009
Due to the downturn of the global economy in 2008-2009, the NYSE temporarily amended the market capitalization rule in January of 2009. The minimum value was reduced so that companies who are able to maintain a market value of over $15 million for 30 trading days in a row would remain listed until April 22, 2009.
This marked the first time that the NYSE suspended its marketing capitalization requirements for its listings. The NYSE’s oversight body chose to lower the market cap requirements after a “significantly higher” than the normal number of companies failed to meet the market cap minimum in the wake of the 2008 financial crisis. In lowering the limit, the NYSE acknowledged that the “unusual market conditions” of the time were to blame for the sharp fall in many companies’ stock prices, rather than problems with the companies themselves.
If the NYSE decides to delist a company due to its failure of the market cap test, it will notify that company in writing. The notification will describe the NYSE’s basis for delisting and the criterion or policy under which the delisting action is being taken. The notice will also include information about the company’s rights to request a review of this decision by the Committee of the Board of Directors of the Exchange.