What Are Listing Requirements?
Let me explain what listing requirements are: they're the various criteria and minimum standards that stock exchanges, like the New York Stock Exchange (NYSE), set for companies to list their shares for trading.
You need to know that a company can only list its shares if it meets both the initial and ongoing requirements.
If a company doesn't meet these on major exchanges, it might still offer shares over the counter (OTC).
Key Takeaways
To get shares traded on a stock exchange, a company has to satisfy certain liquidity and financial requirements from that exchange.
It also has to pay the exchange's initial listing fee and the ongoing yearly fees.
These requirements differ by exchange and cover things like minimum stockholder’s equity, a minimum share price, and a minimum number of shareholders.
The point of these requirements is to ensure only high-quality securities trade on the exchange.
Plus, the high standards give investors confidence in the exchange’s integrity and reputation.
Understanding Listing Requirements
Listing requirements are the conditions a firm must meet before it can list a security on an organized stock exchange, such as the NYSE, Nasdaq, London Stock Exchange, or Tokyo Stock Exchange.
Typically, these include a certain size and market share for the security, along with the issuing firm's financial viability.
Exchanges set these standards to protect their own integrity, reputation, and visibility.
When a firm applies for listing, it has to prove it meets these requirements— the visibility and liquidity that come with listing are big motivators for companies to comply.
Once listed, the firm usually needs to keep up with related but less strict ongoing requirements, or it risks delisting.
There's no legal penalty for delisting, but it has major consequences since the stock can't trade on that exchange anymore.
Companies can list on multiple exchanges if they want, and cross-listing is common.
These requirements don't stop trading entirely—firms can always go OTC, but that lacks the liquidity, oversight, prestige, and visibility of major exchanges.
Fast Fact
As of January 2022, Nasdaq’s U.S. exchange had 3,767 companies listed, followed by Canada’s TMX with 3,546 and the NYSE with 2,529.
Listing Requirements in Practice
Basic Requirements: Listing requirements differ by exchange, but they almost always include metrics on the firm's size—think annual income or market capitalization—and share liquidity, meaning a certain number of shares must already be issued.
For instance, the NYSE requires 1.1 million publicly traded shares with a collective market value of at least $40 million, or $100 million for worldwide trading.
Nasdaq calls for 1.25 million publicly traded shares valued at $45 million collectively, and both exchanges set a minimum listing price of $4 per share.
Fees: Exchanges usually charge an initial listing fee plus annual fees, which can increase based on the number of shares traded and reach hundreds of thousands of dollars.
Nasdaq's fees are notably lower than the NYSE's, which is why newer or smaller firms often choose it.
Dow Jones Listing Requirements
The Dow Jones Industrial Average (DJIA) doesn't have a lot of rules for adding a stock to the index.
The requirements include that the stock must be from a non-transportation or non-utility company in the S&P 500, listed on Nasdaq or NYSE, account for a significant portion of U.S. economic activities, and be among the major companies in the industrial sector.
Can a Company Be Delisted?
Yes, companies can be delisted if they fail to pay annual fees or no longer meet the exchange's financial and liquidity requirements.
Also, if share prices fall below a certain minimum, delisting can happen.
Once delisted, investors can't trade the company's stock on that exchange.
What Listing Requirements Does Nasdaq Have?
Nasdaq has three tiers: Nasdaq Global Select Market, Nasdaq Global Market, and Nasdaq Capital Market, each with its own requirements.
For an initial public offering (IPO), all companies need 1.25 million shares outstanding and 2,200 total shareholders—or 450 with at least 100 shares each.
The market value of unrestricted publicly held shares, or publicly held shares plus shareholder equity, must be at least $45 million.
Companies also have to meet one of four financial standards involving earnings, cash flow and capitalization, capitalization and revenue, or assets and equity.
What Are the Largest Stock Exchanges?
By market capitalization, the largest are the New York Stock Exchange and Nasdaq, both in New York.
As of March 2024, the combined value of shares listed on them exceeded $53 trillion.
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