Reverse Split

    Stock split = a type of corporate action

    Reverse stock split, or reverse split, is just the same as a split but in reverse: a reduction in number of shares and an accompanying increase in the share price. The ratio is also reversed: 1-for-2, or 1-for-3.

    This action is interesting for very cheap shares (e.g. "Penny stock"). For many institutional investors or mutual funds have rules against purchasing a stock whose price is below a minimum, perhaps $5. An extreme case would be when a share's value has become so low that it is in danger of being de-listed from its stock exchange.

    It is also possible that a reverse stock split could be used as a tactic to reduce the number of shareholders. In a hypothetical 1-for-100 reverse split, any investor holding less than 100 shares would simply receive a cash payment and no shares of stock. If the resulting number of shareholders has then dropped below a certain threshold, it may be placed into a different regulatory category.

    Document Actions