What is the Market Capitalization Rule?
The market capitalization rule is a regulation that places a floor on the total value of a company's stock for 30 consecutive days.
How Does the Market Capitalization Rule Work?
The market capitalization rule was established by the New York Stock Exchange (NYSE) in 2004. It places a minimum limit on the total value of a registered company's outstanding shares, or a market capitalization. The rule states that a company's market capitalization cannot remain lower than $25 million for a period of more than 30 days in a row. If it is lower than $25 million for longer than 30 days, the listing will be removed from the stock exchange.
For example, if a company's stock trades at a price low enough to render its market capitalization at $20 million for 31 days, that company will be delisted and its stock will no longer be traded on that exchange.
Why Does the Market Capitalization Rule Matter?
The market capitalization rule reinforces the NYSE's registration requirements for companies that wish to go public with their stock. The NYSE temporarily reduced the market capitalization rule to $15 million during the credit crisis of the late 2000s.
