What is a Graduated Security
A graduated security is a type of equity security that has moved from one stock exchange to another. Generally, securities graduate by moving to a more prestigious exchange with more stringent listing requirements. Moving to a new exchange can bring the listing company extra publicity and greater trading of its stock.
BREAKING DOWN Graduated Security
A graduated security sometimes makes a number of changes when moving from one exchange to another. For example, the listing’s ticker symbol often changes. All current shares generally transfer to the new exchange, and remain in the hands of their holders.
In the US, a common security graduation involves the movement of a listing from the American Stock Exchange (AMEX) to the New York Stock Exchange (NYSE) or the Nasdaq. Firms can also choose to cross-list a security by listing it on multiple exchanges in order to increase its liquidity.
Companies will often choose to move from one exchange to another or cross-list not only for prestige, but also to attract new kinds of investment as part of a growth strategy.
A graduated security will have met the listing requirements and completed any necessary application process for switching exchanges. Listing requirements generally measure a company’s size as defined its market capitalization and the liquidity of its shares.
While all exchanges require certain criteria among all listings, more prestigious exchanges such as the New York Stock Exchange (NYSE), the London Stock Exchange and the Tokyo Stock Exchange require market capitalizations and other criteria that only well-established companies could reasonably meet. Once listed, exchanges require that companies maintain a related set of requirements or face delisting.
In order to graduate to the NYSE, for example, a firm must have 1.1 million publicly-traded shares outstanding and issue an initial public offering of at least $100 million. To graduate to the Nasdaq, a firm must have 1.25 million publicly-traded shares and a collective market value of $45 million.
Alternatives to Listing on Exchanges
Many companies choose to trade their shares over-the-counter, rather than through an exchange. Over-the-counter trades are run by market makers who facilitate the trading of stocks outside of formally established exchanges. By trading over-the-counter, a company avoids having to meet the requirements of an exchange.
While this can make offering shares easier for the company in some ways, it also limits the reach of the company's stock offering. Stocks that trade over-the-counter appear risky to many investors. The listing requirements of an exchange often signal to investors that a company is established.