Reverse Stock Split
Combining multiple shares into fewer shares at a higher price, often to meet exchange listing requirements.
Definition
A reverse stock split reduces the number of outstanding shares while increasing the price per share proportionally. In a 1-for-10 reverse split, 10 shares become 1 share at 10x the price. Reverse splits are often used when a company's share price has fallen below exchange listing requirements (typically $1/share). In private companies, reverse splits are rare but can occur during recapitalizations.
Why it matters
A reverse split does not change the value of your holdings, but it is often a negative signal because it usually means the stock price has dropped significantly. After a 1-for-10 reverse split, your 10,000 shares become 1,000 shares at 10x the price.
Example
A public company's stock dropped to $0.50/share, risking Nasdaq delisting (minimum $1). A 1-for-5 reverse split turns 100M shares at $0.50 into 20M shares at $2.50, meeting the listing requirement. Total market cap is unchanged at $50M.