Major stock exchanges, like the Nasdaq, are exclusive clubs—their reputations rest on the companies they trade. As such, the Nasdaq won't allow just any company to be traded on its exchange. Only companies with a solid history and top-notch management behind them are considered.
The Nasdaq has four sets of listing requirements. Each company must meet at least one of the four requirement sets, as well as the main rules for all companies.
- Major stock exchanges, like the Nasdaq, are exclusive clubs—their reputations rest on the companies they trade.
- The Nasdaq has four sets of listing requirements.
- Each company must meet at least one of the four requirement sets, as well as the main rules for all companies.
- In addition to these requirements, companies must meet all of the criteria under a particular set of standards.
- A company has four ways to get listed on the Nasdaq, depending on the underlying fundamentals of the company.
Listing Requirements for All Companies
Each listing firm must adhere to U.S. Securities and Exchange Commission (SEC) Marketplace Rules for Nasdaq listings, including corporate governance rules 4350, 4351, and 4360.
The regular bid price of shares of the company's stock at the time of listing must be at least $4.00. However, a company may qualify under a closing price alternative of $3.00 or $2.00 if the company meets varying requirements. Typically, there must be at least three (or four depending on the criteria) market makers for the stock.
Companies must have a minimum of 1,250,000 publicly traded shares outstanding upon listing, excluding those held by officers, directors, or any beneficial owners of more than 10% of the company.
Companies must also have at least 450 round lot (i.e., 100 shares or more) shareholders, 2,200 total shareholders, or 550 total shareholders with 1.1 million average trading volume over the past 12 months.
Depending on the types of security listed and the company's size, an application fee of $5,000 to $25,000 could be assessed. Companies must also pay a fee based on the quantity of shares issued, which can range from $100,000 to $150,000. There are also several other fees, depending on the type of company, including an annual listing fee, small-cap fee for smaller companies, and fees for additional services or changes such as record-keeping and additional shares issued.
In addition to the above requirements, financial standards need to be met, depending on the type of security being listed, which are outlined below.
Standard No. 1: Earnings
The company must have aggregate pre-tax earnings in the prior three years of at least $11 million, in the previous two years at least $2.2 million, and no single year in the prior three years can have a net loss.
Standard No. 2: Capitalization With Cash Flow
The company must have a minimum aggregate cash flow of at least $27.5 million for the past three fiscal years, with no negative cash flow in any of those three years. Also, its average market capitalization over the prior 12 months must be at least $550 million, and revenues in the previous fiscal year must be $110 million, minimum.
Standard No. 3: Capitalization With Revenue
Companies can be removed from the cash flow requirement of the second standard if their average market capitalization over the past 12 months is at least $850 million and revenues over the prior fiscal year are at least $90 million.
Standard No. 4: Assets With Equity
Companies can eliminate the cash flow and revenue requirements and decrease their market capitalization requirements to $160 million if their total assets total at least $80 million and their stockholders' equity is at least $55 million.
To stay listed on the Nasdaq, a company must continue to meet the minimum listing requirements or risk being delisted and removed from the Nasdaq exchange.
The Bottom Line
A company has four ways to get listed on the Nasdaq, depending on the company's underlying fundamentals. If a company does not meet specific criteria, such as the operating income minimum, it has to make it up with larger minimum amounts in another area, like revenue. This helps to improve the quality of companies listed on the exchange.
After a company gets listed on the market, it must maintain certain standards to continue trading. Failure to meet the specifications set out by the stock exchange will result in its delisting. Falling below the minimum required share price or market capitalization is one of the major factors triggering a delisting. The exact details of a delisting depends on the exchange.