When a stock goes below $1, the listing exchange sends the company a formal deficiency notice and starts a roughly six-month clock to get the price back above a dollar. The shares keep trading during that window, and you keep owning them. If the company can’t cure the deficiency, the stock is removed from the Nasdaq or NYSE and pushed onto the over-the-counter market, where selling becomes slower, spreads widen, and many brokers restrict what you can do with the position.
The Deficiency Notice and the Compliance Clock
Both major U.S. exchanges enforce a $1.00 minimum price, but they measure it differently.
Nasdaq watches the closing bid price. Once a stock closes below $1.00 for 30 consecutive business days, Nasdaq issues a deficiency notice, and the company has 180 calendar days to fix it. To regain compliance, the closing bid must hit $1.00 or higher for at least 10 consecutive business days inside that window. Companies on the Nasdaq Capital Market can request a second 180-day extension if they still meet every other listing standard and tell Nasdaq they intend to cure the shortfall.1The Nasdaq Stock Market. Nasdaq Rules 5810 and 5815 – Bid Price Compliance
The NYSE uses a 30 trading-day average closing price instead of the daily bid. A company is out of compliance when that average dips under $1.00. It then has six months, and to cure it must post both a closing price and a 30-day average closing price above $1.00 on the last trading day of some calendar month in that period. Fail on either measure, and the NYSE begins suspension and delisting proceedings.2U.S. Securities and Exchange Commission. File No. SR-NYSE-2025-43 – Self-Regulatory Organizations
The notice itself doesn’t halt trading. It’s a warning with a deadline. Companies must disclose that they received it, generally through a Form 8-K filed with the SEC, so the market learns about the compliance failure almost immediately.3Securities and Exchange Commission. Additional Form 8-K Disclosure Requirements and Acceleration of Filing Date That disclosure often pushes the price down further, which makes the deficiency harder to cure.
What Happens to Your Shares During the Cure Period
Your shares don’t go anywhere. The company is still publicly listed while the compliance clock runs, and you can buy, sell, or hold as usual. The real risk at this stage is watching the price bleed while the company works on a fix. Many stocks in this position keep drifting lower, especially after the 8-K disclosure and any negative earnings news that accompanies it.
If the company eventually recovers compliance, whether through a reverse split or genuine business improvement, your shares carry on with the recovered price. If not, delisting follows, and your ownership survives but changes character.
Reverse Stock Splits and Other Fixes
The fastest way to get a stock back above $1.00 is a reverse split. A 1-for-10 reverse split turns every 10 shares you own into 1 share priced at 10 times the old amount. Your total investment value on paper stays the same. If the split leaves you with fractional shares, the company almost always pays cash for the fraction rather than issuing partial shares. Someone holding 15 shares before a 1-for-10 split ends up with 1 share plus a small cash payment for the leftover half.
Whether a reverse split needs shareholder approval depends on the company’s state of incorporation and its corporate charter.4Investor.gov. Reverse Stock Splits
Reverse splits work mechanically, but the market often reads them as a distress signal. The price frequently drifts back down after the split because the underlying business hasn’t improved. Companies that do multiple reverse splits over a few years are running in place, and long-term holders see their share counts shrink with each round.
Some companies try to lift the price organically instead, through new financing, positive earnings guidance, or asset sales that shore up the balance sheet. These paths can work when there is real news behind them, but they’re slower and less predictable than a reverse split. In practice, most companies that receive a deficiency notice end up splitting.
If the Company Fails: Delisting to the OTC Market
When a company exhausts its compliance period without curing the deficiency, the exchange starts formal delisting. The company can appeal, which pauses the process, but if the appeal is denied the exchange files a Form 25 with the SEC.5eCFR. 17 CFR 240.12d2-2 – Removal from Listing and Registration Delisting becomes effective 10 days after Form 25 is filed.6U.S. Securities and Exchange Commission. Form 25 – Notification of Removal from Listing and/or Registration From that date, the stock can no longer trade on the Nasdaq or NYSE.
Delisted stocks move to the over-the-counter market, run by the OTC Markets Group in three tiers. The top tier, OTCQX, requires strong financials and disclosure and rarely takes in freshly delisted companies. The middle tier, OTCQB, is aimed at developing companies with audited financials and current disclosures. Most delisted companies land on the bottom tier, the Pink Market, where disclosure requirements are minimal and some companies provide almost no financial information at all.7OTC Markets Group. OTCQX Best Market Overview8OTC Markets Group. Alternative Reporting Standard – Disclosure Guidelines for the Pink Market
The trading experience changes sharply. On a major exchange, an active stock has spreads of a penny or two between bid and ask. The same stock on the Pink Market might have a spread of 20% or more, which means you lose a significant slice of value just entering or exiting a position. Institutional investors with rules against holding non-exchange securities are forced to sell after delisting, which piles more downward pressure on the price during the transition.
Your brokerage may also restrict what you can do. Most brokers let you sell an existing delisted position but won’t let you buy more once the stock is off a major exchange. Some sell any fractional shares automatically, since OTC securities don’t support fractional trading.
Penny Stock Restrictions After Delisting
A stock trading under $1.00 while still on a major exchange isn’t a “penny stock” under SEC rules. The SEC’s definition excludes securities registered on a national exchange that has maintained substantially similar listing standards since 2004, along with securities on exchanges with initial listing standards requiring at least a $4 minimum bid price, $5 million in stockholders’ equity, and other financial benchmarks.9eCFR. 17 CFR 240.3a51-1 – Definition of Penny Stock Once a stock is delisted, that shield disappears.
When a security falls under the penny stock rules, brokers face specific hurdles before executing a trade. Before opening a penny stock account, a broker must collect information about the customer’s financial situation and investment experience, decide that penny stock trading is suitable, and deliver a written suitability statement. The customer has to sign and return it, and the broker must then wait at least two business days before executing any trade.10eCFR. 17 CFR 240.15g-9 – Sales Practice Requirements for Certain Low-Priced Securities Many online brokers avoid the compliance overhead by refusing to handle penny stocks at all, which further thins the pool of buyers.
Claiming a Loss on Your Taxes
If you sell a sub-dollar stock for less than you paid, the difference is a capital loss. It offsets capital gains dollar-for-dollar. If your losses exceed your gains for the year, you can deduct up to $3,000 of the excess against ordinary income ($1,500 if married filing separately), and any remainder carries forward to future tax years indefinitely.11Office of the Law Revision Counsel. 26 USC 1211 – Limitation on Capital Losses
If the company disappears entirely and the stock becomes worthless, you can’t do a normal sale to realize the loss. Federal tax law treats a worthless security as if it were sold for nothing on the last day of the taxable year in which it became worthless.12GovInfo. 26 USC 165 – Losses You claim it on the return for that year, subject to the same capital loss limits.
The difficulty is proving when the stock actually became worthless. A share still trading at a fraction of a penny on the Pink Market isn’t technically worthless if someone will buy it. The IRS expects a showing that there’s no reasonable chance of recovery. If you realize later that you should have claimed a worthless stock deduction in an earlier year, you generally have seven years to file an amended return for that specific deduction rather than the usual three.13Internal Revenue Service. Topic No. 409 – Capital Gains and Losses