Key Takeaways
- Listing requirements ensure that companies meet certain standards before their shares can trade on major stock exchanges.
- Exchanges set criteria like minimum market capitalization, share price, and shareholder count to maintain integrity and reputation.
- Companies unable to meet major exchange standards may trade shares over-the-counter, albeit with less liquidity and visibility.
- Nasdaq offers three listing tiers, each with specific requirements like share count and financial standards for IPOs.
- Failure to comply with listing standards can lead to delisting, meaning the company’s shares are no longer traded on that exchange.
What Are Listing Requirements?
To list its shares on a stock exchange, a company must meet certain exchange liquidity and financial requirements. Also, it must pay both the exchange’s initial and ongoing yearly listing fees. Listing requirements vary by exchange and include a minimum stockholder’s equity, a minimum share price, and a minimum number of shareholders.
Requirements ensure that only high-quality securities are traded on an exchange. Moreover, the high standards that companies must meet reassure investors of an exchange’s integrity and reputation.
Demystifying Stock Exchange Listing Requirements
Listing requirements are a set of conditions that a firm must meet before listing a security on one of the organized stock exchanges, such as the NYSE, the Nasdaq, the London Stock Exchange, or the Tokyo Stock Exchange.
The requirements typically include a certain size and market share of the security to be listed. The underlying financial viability of the issuing firm is also a criterion. Exchanges establish these standards as a means of maintaining their own integrity, reputation, and visibility.
Firms seeking listings must prove they meet exchange requirements. A listing’s visibility and liquidity strongly incentivize companies to meet requirements.
Once a security is listed, the issuing firm usually must maintain a set of related but less stringent trading requirements. Otherwise, the company faces delisting. While no legal penalty is involved, being delisted can mean huge consequences for a company because its stock won’t be traded on the exchange.
Firms can cross-list a security on more than one exchange, and often do. Listing requirements are not barriers to trading altogether, as firms are always free to trade securities over the counter. However, OTC trading does not provide anywhere near the liquidity, regulatory oversight, prestige, or visibility as trading on one of the major stock exchanges provides.
Fast Fact
Nasdaq’s U.S. exchange had 3,767 companies listed as of January 2022. Canada’s TMX exchange and the New York Stock Exchange followed with 3,546 companies and 2,529 companies, respectively.
How Listing Requirements Influence Market Practice
Essential Criteria for Stock Exchange Listing
Requirements vary by exchange, but some metrics are common. The two most important categories of requirements deal with the size of the firm (as defined by annual income or market capitalization) and the liquidity of the shares (a certain number of shares must already have been issued).
For example, the NYSE requires firms to already have 1.1 million publicly traded shares outstanding with a collective market value of at least $40 million ($100 million for worldwide trading).
The Nasdaq requires firms to already have 1.25 million publicly traded shares with a collective market value of $45 million. Both the NYSE and the Nasdaq require a minimum security listing price of $4 per share.
Navigating Listing Fees and Costs
Typically, there is an initial listing fee and yearly fees. The annual fees can scale up depending on the number of shares being traded and can total hundreds of thousands of dollars. Nasdaq fees are considerably lower than those of the NYSE. This lower cost has made the Nasdaq a more popular choice of exchange for newer or smaller firms.
Dow Jones Listing Requirements
The Dow Jones Industrial Average (DJIA) doesn’t have many rules for how a stock gets added to the index. Requirements are few, including:
- The stock must be a non-transportation or non-utility company in the S&P 500.
- The stock must be listed on the Nasdaq or the NYSE.
- The company must account for a significant portion of U.S. economic activities.
- The company must also be among the major companies in the industrial sector.
Can a Company Be Delisted?
Yes. If companies fail to pay annual fees or can no longer meet the financial and liquidity requirements of an exchange, they can be delisted. Also, if share prices drop below a certain minimum, a company can be delisted. Once delisted from a particular exchange, investors won’t be able to trade a company’s stock on that exchange.
What Listing Requirements Does Nasdaq Have?
Nasdaq has three different tiers of listings: Nasdaq Global Select Market, Nasdaq Global Market, and Nasdaq Capital Market. Each tier has its specific listing requirements. In the instance of an initial public offering (IPO), all companies must have 1.25 million shares outstanding and 2,200 total shareholders (or 450 shareholders with 100 shares each). The market value of unrestricted publicly held shares (or publicly held shares and shareholder equity) must be at least $45 million. Companies must meet one of four possible financial standards as well. These involve earnings, cash flow and capitalization, capitalization and revenue, or assets and equity.
What Are the Largest Stock Exchanges?
By market capitalization, the largest stock exchanges are the New York Stock Exchange and the Nasdaq. Both are located in New York. As of March 2024, the combined value of shares listed on both exchanges reached over $53 trillion.
The Bottom Line
Listing requirements support the integrity and reputation of stock exchanges by ensuring that only high-quality securities are traded. Companies must meet both initial and ongoing requirements, including payment of fees, financial standards, and liquidity measures. Being listed offers major benefits to companies, such as increased liquidity, prestige, and investor confidence.
Companies already listed that fail to meet these requirements may face delisting, which can significantly impact their visibility and trading activity. It can mean OTC trading, which can diminish brand awareness.