What Is the Nasdaq Capital Market?
Let me explain what the Nasdaq Capital Market is. It's one of Nasdaq's U.S. market tiers, and it includes early-stage companies that have relatively lower market capitalizations. You should know that the listing requirements here are less stringent than for the two other Nasdaq market tiers, which are geared toward larger companies with higher market caps.
Key Takeaways
Here's what you need to grasp about the Nasdaq Capital Market, or Nasdaq-CM—it's one of three listing tiers on the Nasdaq exchange, specifically for companies that need to raise capital. These can be small companies looking to grow their capital or shell corporations set up to raise funds in public markets to acquire other businesses. If a company doesn't qualify for the Nasdaq National Market, it trades on Nasdaq-CM. Also, these companies must meet a net income standard of at least $750,000, a minimum public float of 1,000,000 shares, at least 300 shareholders, and a share bid price of at least $4, with some exceptions.
Understanding the Nasdaq Capital Market
I want to dive into understanding the Nasdaq Capital Market. Until 2005, it was known as the Nasdaq SmallCap Market, and it primarily lists small-cap stocks, typically those with market capitalizations around $300 million to $2 billion. The name change highlighted a focus on companies that need to raise capital. It's intended as a less burdensome entry point for smaller companies or Special Purpose Acquisition Companies (SPACs) to capitalize and grow via a Nasdaq listing.
Even though the initial listing requirements are more relaxed, the corporate governance needed to stay listed is the same across all tiers. That means Nasdaq Capital Market companies have to maintain a code of conduct, an audit committee, independent directors, and similar standards.
Listing Requirements for the Nasdaq Capital Market
Now, let's talk about the listing requirements. The Nasdaq Capital Market eases the path for early-stage companies to get listed, especially compared to other senior exchanges with tougher rules. To list initially, companies must meet all criteria under at least one of three standards: the equity standard, the market value of listed securities standard, or the net income standard.
All standards share requirements like one million publicly held shares, 300 shareholders, and three market makers. But they differ in key areas. The equity standard calls for stockholders' equity of $5 million and a two-year operating history, while the other two require only $4 million in equity and no operating history.
The market value of listed securities standard needs a market value of listed securities at $50 million and publicly held shares at $15 million. The net income standard requires $750,000 in net income from the latest fiscal year or two of the last three years, with the lowest publicly held shares value at $5 million.
Companies can choose the standard that fits them best, but these listing standards and governance rules are stricter than some other early-phase markets. Due to the costs of compliance, companies often exceed the minimums before listing. Other markets like the Alternative Investments Market (AIM) offer lighter regulations as a bridge for companies growing toward Nasdaq.
Nasdaq Listing Tiers
Finally, consider the Nasdaq listing tiers. The exchange has three: the Nasdaq Capital Market, formerly the Nasdaq SmallCap Market for small-cap companies; the Nasdaq Global Market, previously part of the Nasdaq National Market for about 1,450 mid-cap stocks; and the Nasdaq Global Select Market, the newest tier from the former Nasdaq National Market, listing about 1,200 large-cap companies.
Details on Nasdaq Tiers
- Each tier has varying requirements for documentation, average market capitalization over the previous month, and number of shareholders.
- Companies can move between tiers as they meet or fail to meet requirements.
- The top tier, Nasdaq Global Select, typically has about 1,400 companies, while the lower tiers range from 650 to 1,300 each.
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