A:

The over-the-counter market is not an actual, physical exchange like the New York Stock Exchange or Nasdaq. Instead, it is a network of companies that serve as market makers in particular low-priced and thinly traded stocks. Thus, the OTC market is actually a quote system between these companies that buy and sell stocks "over-the-counter" and not "on the exchange." A publicly traded company can, in fact, switch from being traded over-the-counter to a stock exchange that it believes will be favorable to its financing efforts. However, the company must first meet the new exchange's financial and regulatory requirements.

Mechanics of Moving

First, the company and its stock must meet listing requirements for its price per share, total value, corporate profits, daily or monthly trading volume, revenues, and SEC reporting requirements. or example, the New York Stock Exchange requires newly listed companies to have 1.1 million publicly held shares, which must be held by a minimum of 2,200 shareholders. By contrast, the Nasdaq electronic exchange requires 1.25 million public shares held by at least 550 shareholders.

Second, the company must be approved for listing by one of the organized exchanges. It must first fill out an application and provide various financial statements verifying that it meets its standards. If accepted, the organization typically has to provide written notice to its previous exchange indicating its intention to voluntarily delist. The exchange may require the company to issue a press release notifying shareholders about this decision.

While a lot of fanfare may occur when a stock is newly listed on an exchange, especially the NYSE, a new initial public offering (IPO) is not carried out. Instead, the stock simply goes from being traded through the OTC market to being traded on the exchange.

However, the stock symbol may change. A stock that moves from the OTC to Nasdaq often keeps its symbol. Contrarily, a stock that moves to the NYSE often must change its symbol, due to NYSE regulations that limit stock symbols to three letters. The OTC and Nasdaq both allow up to five letters.

Why Switch Stock Exchanges?

There are a variety of reasons why a company may want to transfer to a bigger, official exchange. Given its size, companies that meet the requirements of the NYSE sometimes move their stock there for the increased visibility and liquidity that it offers. A company listed on several exchanges around the world may choose to delist from one or more in order to curb costs and focus on its biggest investors.

In some cases, firms have to involuntarily move to a different exchange when they no longer meet the financial or regulatory requirements of their current exchange.

A Dow-Inspired Departure

Although the NYSE may seem like the pinnacle for a publicly traded company, it may make sense for a company to switch exchanges. For example, Kraft Foods Inc., once one of the 30 companies in the Dow Jones Industrial Average, voluntarily left the NYSE for the Nasdaq, becoming the first DJIA company ever to do so. At the time of the move, Kraft was planning to separate into two companies, and that decision, coupled with the Nasdaq's significantly lower fees, prompted the switch. 

For most companies, however, the marriage to an exchange tends to be of the lifetime variety; relatively few companies voluntarily jump from one exchange to another. In fact, only Charles Schwab comes to mind, having moved back and forth between the NYSE and the Nasdaq twice in the last decade. (See also: Why Companies Switch Exchanges).

 

This question was answered by Ken Clark.

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