# Reverse stock split

> A corporate action that combines existing shares into fewer shares at a higher price, often used to regain compliance with exchange minimum bid rules.

Source: https://www.quantisnow.com/glossary/reverse-stock-split
Topic: Glossary / Corporate actions
Also known as: reverse split, share consolidation
Last updated: 2026-10-27

A reverse stock split is a corporate action in which a company combines a fixed number of existing shares into one new share, such as 1-for-10, raising the per-share price by the same factor. Total market value is unchanged at the moment of the split, but the share count shrinks.

## How it works

Most reverse splits require shareholder approval, usually sought in a [proxy statement](https://www.quantisnow.com/glossary/def-14a) that asks for authority to split within a range of ratios. The board then picks the final ratio and an effective date, announced by press release and often an 8-K. Fractional shares are typically cashed out. The stock usually trades under a new CUSIP after the split.

The most common reason is the exchange [minimum bid price](https://www.quantisnow.com/glossary/minimum-bid-price) rule. On Nasdaq and the NYSE, a stock that closes below $1.00 for 30 consecutive business days receives a deficiency notice and generally has 180 calendar days to cure. A reverse split is the quickest fix. Nasdaq has tightened its rules for companies that split repeatedly, limiting or removing the cure period in some cases.

## Why it matters for traders

Reverse splits carry a poor reputation, especially among small caps. They are frequently a precursor to a fresh equity raise, because a higher share price makes an offering easier to place. Many stocks drift lower after the split as the underlying problems remain. Traders watch for a reverse split announcement paired with an active [shelf registration](https://www.quantisnow.com/glossary/shelf-registration) or [ATM program](https://www.quantisnow.com/glossary/at-the-market-offering). The share count reduction can also shrink the float sharply, which occasionally produces volatile spikes.

## Example

A hypothetical biotech, Northwind Therapeutics (NWTX), trades at $0.40 with 200 million shares outstanding, an $80 million market cap. After a 1-for-20 reverse split it has 10 million shares at $8.00, still $80 million. Two weeks later it announces a $15 million registered direct offering.

## FAQ

### Is a reverse stock split bad for shareholders?

It does not change the value of a stake on its own, but it often signals financial strain and frequently precedes dilutive financing.

### Why do companies do a reverse split?

Most often to lift the share price above $1.00 to keep an exchange listing, and sometimes to attract institutions that avoid low-priced stocks.

## Related terms

- [Stock split](https://www.quantisnow.com/glossary/stock-split.md): A corporate action that increases a company's share count by a fixed ratio and cuts the per-share price proportionally, leaving market value unchanged.
- [Minimum bid price requirement](https://www.quantisnow.com/glossary/minimum-bid-price.md): An exchange listing rule requiring a stock to trade at $1.00 or more, with a deficiency notice after 30 consecutive business days below it.
- [Delisting](https://www.quantisnow.com/glossary/delisting.md): The removal of a company's stock from a national exchange, either voluntarily or because it failed listing standards, often leaving it to trade OTC.
- [Penny stock](https://www.quantisnow.com/glossary/penny-stock.md): A low-priced, usually small and thinly traded stock, defined by SEC rules generally as an equity security trading below $5 per share.
- [Dilution](https://www.quantisnow.com/glossary/dilution.md): The reduction in existing shareholders' ownership percentage and per-share claims on earnings when a company issues new shares.
- [DEF 14A (proxy statement)](https://www.quantisnow.com/glossary/def-14a.md): The definitive proxy statement a public company files before a shareholder meeting, covering board elections, executive pay and other voting items.

## On Quantisnow

- [Stock splits and corporate actions](https://www.quantisnow.com/guides/stock-splits-and-corporate-actions)
- [Corporate actions: splits and ticker changes](https://www.quantisnow.com/corporate-actions)
- [Nasdaq-listed companies](https://www.quantisnow.com/exchanges/nasdaq)
- [SEC DEF 14A proxy statements](https://www.quantisnow.com/categories/def-14a)
- [Latest reverse stock split announcements](https://www.quantisnow.com/top/reverse-splits)