What are NASDAQ Listing Requirements? A Detailed Guide
Traders have always associated American stock exchanges with maximum liquidity. They represent the power of the financial industry and the stock market. When it comes to the US stock market, many people immediately think of the NYSE, AMEX, and, of course, The National Association of Securities Dealers Automated Quotations, better known as NASDAQ. In this article, let us get to the bottom of what it is and the requirements to be listed on NASDAQ.
What is NASDAQ?
NASDAQ is the second-largest stock exchange in the world and the leader in terms of the volume of shares traded. It is a division of the National Association of Securities Dealers (NASD) and is controlled by the Securities and Exchange Commission (SEC). Shares of the leading technological giants, such as Google and Microsoft, are traded there, and more than 3,000 companies are listed.
NASDAQ is an extremely interesting exchange for trading. It is not only one of the largest in the world, but it is also developing very rapidly. Find out why traders choose NASDAQ.
Tiers of NASDAQ listed companies
In order for your company to be listed on NASDAQ, you must go through the listing procedure. Then it is necessary to register with the SEC, and meet the minimum requirements for the number of shareholders, securities in circulation, and the amount of capital.
NASDAQ has a practical, individualized approach to each company. The exchange itself is divided into three tiers:
- the NASDAQ Capital Market for small-cap companies,
- the NASDAQ Global Market for mid-cap companies,
- and the NASDAQ Global Select Market for large-cap companies.
Each of the abovementioned tiers has its own listing criteria.
NASDAQ listing criteria
Companies seeking a listing on NASDAQ must meet quantitative and qualitative criteria and governance standards. For those who want to make sure that they are suitable to apply, there is a preliminary listing option. It will determine whether the issuer meets the necessary criteria and standards.
The process itself is fairly easy and safe, considering that the NASDAQ Listing Center provides support and useful tips on each step of the way.
Application consists of the following steps:
- Gathering company information. Check out the preview of the application forms on the NASDAQ website and prepare everything in advance to make the process faster and easier.
- Creating an account. Without it, you will be unable to complete and submit your application.
- Completing the application. You can submit the application at once or save it and continue another time.
- Connecting with your listing analyst. After the submission, you will receive a confirmation email. A few days later, you will receive the second email with your assigned specialist's contact information.
The application’s processing usually takes four to six weeks.
See below for the full list of requirements for the NASDAQ Capital Market, NASDAQ Global Market, and NASDAQ Global Select Market.
NASDAQ Capital Market Financial and Liquidity Requirements
An issuer must meet all of the criteria of at least one of the following standards.
|
Requirements |
Equity Standard |
Market Value of Listed Securities Standard |
Net Income Standard |
|
Stockholders’ Equity |
$5 million |
$4 million |
$4 million |
|
Market Value of Unrestricted Publicly Held Shares |
$15 million |
$15 million |
$5 million |
|
Operating History |
2 years |
— |
— |
|
Market Value of Listed Securities |
— |
$50 million |
— |
|
Net Income from Continuing Operations (in the latest fiscal year or in two of the last three fiscal years) |
— |
— |
$750,000 |
|
Unrestricted Publicly Held Shares |
1 million |
1 million |
1 million |
|
Unrestricted Round Lot Shareholders |
300 |
300 |
300 |
|
Market Makers |
3 |
3 |
3 |
|
Bid Price or Closing Price |
$4 $3 |
$4 $2 |
$4 $3 |
NASDAQ Global Market Financial and Liquidity Requirements
An issuer must meet all of the criteria of at least one of the following standards.
|
Requirements |
Income Standard |
Equity Standard |
Market Value Standard |
Total Assets/ Total Revenue Standard |
|
Income from Continuing Operations before Income Taxes (in the latest fiscal year or two of the last three fiscal years) |
$1 million |
— |
— |
— |
|
Stockholders’ Equity |
$15 million |
$30 million |
— |
— |
|
Market Value of Listed Securities |
— |
— |
$75 million |
— |
|
Total Assets and Total Revenue (in the latest fiscal year or two of the last three fiscal years) |
— |
— |
— |
$75 million and $75 million |
|
Unrestricted Publicly Held Shares |
1.1 million |
1.1 million |
1.1 million |
1.1 million |
|
Market Value of Unrestricted Publicly Held Shares |
$8 million |
$18 million |
$20 million |
$20 million |
|
Bid Price |
$4 |
$4 |
$4 |
$4 |
|
Unrestricted Round Lot Shareholders |
400 |
400 |
400 |
400 |
|
Market Makers |
3 |
3 |
4 |
4 |
|
Operating History |
— |
2 years |
— |
— |
NASDAQ Global Select Market Financial Requirements
The issuer must meet all of the criteria of at least one of the four financial standards and meet liquidity requirements.
|
Financial Requirements |
Standard 1: Earnings |
Standard 2: Capitalization with Cash Flow |
Standard 3: Capitalization with Revenue |
Standard 4: Assets with Equity |
|
Pre-Tax Earnings (income from continuing operations before income taxes) |
Aggregate in prior three fiscal years ≥ $11 million and Each of the prior three fiscal years ≥ $0 and Each of the two most recent fiscal years ≥ $2.2 million |
— |
— |
— |
|
Cash Flows |
— |
Aggregate in prior three fiscal years ≥ $27.5 million and Each of the prior three fiscal years ≥ $0 |
— |
— |
|
Market Capitalization |
— |
Average ≥ $550 million over prior 12 months |
Average ≥ $850 million over prior 12 months |
$160 million |
|
Revenue |
— |
Previous fiscal year ≥ $110 million |
Previous fiscal year ≥ $90 million |
— |
|
Total Assets |
— |
— |
— |
$80 million |
|
Stockholders’ Equity |
— |
— |
— |
$55 million |
|
Bid Price |
$4 |
$4 |
$4 |
$4 |
NASDAQ Global Select Market Liquidity Requirements
The issuer must meet the following liquidity requirements.
|
Liquidity Requirements |
Initial Public Offerings and Spin-Off Companies |
Direct Listing with a Capital Raise or Seasoned Companies: Currently Trading Common Stock or Equivalents |
Direct Listing |
Affiliated Companies |
|
Unrestricted Round Lot Shareholders or Total Shareholders or Total Shareholders and Average Monthly Trading Volume over Past Twelve Months |
450 or 2,200 |
450 or 2,200 or 550 and 1.1 million |
450 or 2,200 or 550 and 1.1 million |
450 or 2,200 or 550 and 1.1 million |
|
Unrestricted Publicly Held Shares |
1,250,000 |
1,250,000 |
1,250,000 |
1,250,000 |
|
Market Value of Unrestricted Publicly Held Shares or Market Value of Unrestricted Publicly Held Shares and Stockholders’ Equity |
$45 million |
$110 million or $100 million and $110 million |
$110 million or $100 million and $110 million |
$45 million |
|
Valuation by an Independent Third-Party |
— |
— |
$250 million Market Value of Publicly Held Shares |
— |
NASDAQ listing fee
The aggregate number of shares outstanding at the time of initial listing determines the entry fee. Here is a list of fees for the three tiers.
Entry fees for NASDAQ Global Select Market and NASDAQ Global Market
|
Total Shares Outstanding |
Entry Fee |
|
Up to 30 million |
$150,000, including $25,000 application fee |
|
30+ to 40 million |
$170,000, including $25,000 application fee |
|
40+ to 50 million |
$210,000, including $25,000 application fee |
|
50+ to 60 million |
$250,000, including $25,000 application fee |
|
60+ to 70 million |
$290,000, including $25,000 application fee |
|
Over 70 million |
$295,000, including $25,000 application fee |
Entry fees for NASDAQ Capital Market
|
Total Shares Outstanding |
Entry Fee |
|
Up to 15 million |
$50,000, including $5,000 application fee |
|
Over 15 million |
$75,000, including $5,000 application fee |
Seasoning rules for NASDAQ
For the companies that have made a reverse merger with a public company, the listing application also requires compliance with the Seasoning Rules. The rules were adopted in 2011 and included the following points:
- The application is restricted until the company has traded on the OTC market or until one year has passed since the information and all of the reports about the merger was filed.
- The closing stock price must be maintained at the initial listing standard level for at least thirty days before applying.
- The SEC reserves the right to impose additional requirements as deemed necessary.
Corporate governance requirements
The three tiers of companies listed on the NASDAQ exchange have to abide by similar corporate governance requirements. Here is a general list:
Distribution of annual or interim reports
The company's annual and interim reports must be available for shareholders, either online on the company's website or sent by mail.
Independent directors
Independent directors should make up the majority of the board.
Audit committee
The company must have an audit committee consisting of at least three independent directors.
Compensation committee
The company must have a compensation committee consisting of at least two independent directors.
Nomination of directors
Independent directors must select or recommend nominees for directors.
Code of conduct
The company should have a code of conduct that applies to all employees.
Annual meetings
The company must hold the annual meetings no later than one year after its fiscal year has ended.
Solicitation of proxies
At any shareholder meetings, the company should solicit proxies.
Quorum
The quorum of no less than ⅓ of the company’s outstanding shares of voting stock on any meeting of the holders of common stock.
Conflict of interest
The company must oversee all transactions for potential conflict of interest.
Shareholder approval
Shareholders must approve acquisitions that include issuance that equals 20% or more of the pre-transaction outstanding shares, issuances resulting in a change of control, and equity compensation.
Voting rights
Shareholders’ voting rights can not be restricted by any corporate actions.
Conclusion
These days, NASDAQ includes not only shares of high-tech companies but also other listed organizations. The exchange actively attracts companies for IPOs and competes with the NYSE by the number of companies traded on the exchange. However, only compliance with all the rules and requirements will ensure the rightful place among NASDAQ issuers.
