Reverse Stock Splits & Fractional Shares: Best Practices for Issuers

Excerpt

Reverse stock splits have become increasingly common for maintaining exchange listing compliance, but their execution requires careful attention to operational details and market dynamics. With a 191% increase from 2023 to 2024, issuers must navigate complex fractional share treatments, evolving arbitrage strategies, and heightened regulatory scrutiny.

While key stakeholders such as transfer agents and Depository Trust and Clearing Corporation (DTCC) play important operational roles, responsibility for effective execution ultimately lies with the issuer. Market participants should standardize fractional share treatment through cash-in-lieu payment to eliminate arbitrage opportunities; enhance plain English disclosure requirements; and establish coordination among market participants through standardized communication protocols.