Listing on The Nasdaq Stock Market

The Nasdaq Stock Market has three tiers: The Nasdaq Global Select Market, The Nasdaq Global Market, and The Nasdaq Capital Market. Each tier has separate requirements for a company’s financial standing, liquidity, and corporate governance. The initial financial and liquidity requirements are greater for The Nasdaq Global Select Market than they are for the Nasdaq Global Market. Similarly, the Nasdaq Global Market is more stringent than the Nasdaq Capital Market. Companies apply to a specific tier when filing an Initial Public Offering (IPO) on the Nasdaq Stock Market, and applications undergo a rigorous review process. Thus, it is important that companies take all listing requirements into account when filing.

This post focuses on the requirements of The Nasdaq Capital Market. If you have questions or need assistance with listing on the Nasdaq Global Select Market or the Nasdaq Global Market, reach out to our office, and we will be happy to help you.

Financial & Liquidity Requirements

Companies must meet all of the criteria under at least one of the three standards below:

Requirements	Equity Standard	Market Value of Listed Securities Standard	Net Income Standard
Listing Rules	5505(a) & 5505(b)(1)	5505(a) & 5505(b)(2)	5505(a) & 5505(b)(3)
Stockholders' Equity	$5,000,000	$4,000,000	$4,000,000
Market Value of Publicly Held Shares	$15,000,000	$15,000,000	$5,000,000
Operating History	2 Years	No Requirement	No Requirement
Market Value of Listed Securities	No Requirement	$50,000,000	No Requirement
Net Income from Continuing Operations (in the latest fiscal year or in 2 of the last 3 completed fiscal years)	No Requirement	No Requirement	$750,000
Publicly Held Shares	1,000,000	1,000,000	1,000,000
Bid Price OR	$4	$4	$4
Closing Price* (for at least 5 consecutive business days prior to approval)	$3	$2	$3
Corporate Governance	Required	Required	Required
Total Shareholders	300	300	300

*To qualify under the closing price alternative, a company must have either:

(a) average annual revenues of at least $6,000,000 for the last 3 years,

(b) net tangible assets in excess of $5,000,000, or

(c) net tangible assets in excess of $2,000,000 and a minimum 3-year operating history

and satisfy all other financial and liquidity requirements listed above.

Listing Reverse Mergers

The Securities Exchange Commission (SEC) approved the Seasoning Rules in 2011, which require that the equity securities of a reverse merger company trade in either the U.S. over-the-counter market, another national exchange, or a regulated foreign exchange for at least one year following the consummation of the reverse merger before the company can apply for listing.

This one-year period starts when the company completes its 10-K filing. Thus, if a company with a fiscal year ending December 31 consummates a reverse merger in February and files its 10-K in March, the company will not be able to list until it files its next 10-K (completing the one year).

Additionally, a reverse merger company must maintain a closing stock price equal to its initial listing standard (typically $2-$4), for at least 30 of the most recent 60 trading days prior to listing.

The SEC may elect to impose more stringent requirements than these if it believes such measures are warranted based on a number of factors, including: (1) an inactive trading market, (2) a low number of publicly held shares not subject to transfer restrictions, (3) and whether the reverse merger company disclosed material weaknesses in internal controls.

Corporate Governance

The Nasdaq Stock Market maintains high standards of corporate governance for listing companies. While there are exemptions from these requirements and phase-in options for limited partnerships, foreign private issuers, initial public offerings, and controlled companies, the chart below shows the general corporate governance requirements for listing companies.

Requirements	Description	Listing Rule
Distribution of Annual or Interim Reports	Annual & interim reports must be available to shareholders, either by mail or electronically.	5250(d)
Independent Directors	A majority of the board of directors must be independent directors.	5605(b)
Audit Committee	An independent committee of at least 3 members, one with financial sophistication, who also satisfy SEC Rule 10A-3 requirements and understand financial documents.	5605(c)
Compensation of Executive Officers	A compensation committee of at least 2 members must exist, consisting solely of independent directors, who will recommend executive officer's compensation to the full board for approval.	5605(d)
Nomination of Directors	Independent directors must select or recommend nominees for future directors.	5605(e)
Code of Conduct	A code of conduct for all directors, officers, and employees must exist and be publicly available.	5610
Annual Meetings	An annual meeting of shareholders must be held no later than one year after the end of the company's fiscal year.	5620(a)
Solicitation of Proxies	Proxies must be solicited for each shareholder meeting.	5620(b)
Quorum	A quorum (not less than 33.33%) of the outstanding shares of voting stock must be present for any common stockholder's meeting.	5620(c)
Conflict of Interest	Appropriate review and oversight of all related party transactions for potential conflict of interest situations.	5630
Shareholder Approval	Companies must obtain shareholder approval for certain issuances of securities, including:· Acquisitions where the issuance is either (a) 20% or more of the pre-transaction outstanding shares, or (b) 5% or more of the pre-transaction outstanding shares when the related party has a 5% or greater interest in the acquisition target· Issuances resulting in a change of control· Equity compensation · Private placements where the issuance is 20% or more of the pre-transaction outstanding shares at a price less than the greater of book or market value	5635
Voting Rights	Corporate actions or issuance cannot disparately reduce or restrict the voting rights of existing shareholders.	5640

The Process

Companies must apply to be listed on the Nasdaq Stock Market. The approval process generally takes 4-6 weeks, but this can vary. Upon submitting your application, a Nasdaq representative will review the materials and provide feedback. Companies then receive an opportunity to make corrections and edits. This process continues, back and forth, until an application is either accepted or denied.

If you take the time to carefully collect and compose the required materials, the approval timeline should be relatively short. Hiring a professional to prepare these documents goes a long way toward this – they know what the Nasdaq expects and looks for in each document.

Application Materials

Below is a list of the materials required for a listing application along with a brief description of each.

    Document
    Description
  
    Symbol Reservation Form
    Required to reserve or change your trading symbol. A symbol reservation request may be submitted up to two years in advance. Not required for non-convertible bonds, other than baby bonds.
  
    Listing Application
    Contains detailed information regarding the company and its offering. A variety of application forms are available depending on the type of and reason for listing. 
  
    Listing Agreement
     A 2-page document affirming the company's agreement to: ·      comply with all rules and regulations of The Nasdaq Stock Market
·      hold Nasdaq harmless from any third-party trademark infringement claims, and 
·      provide a disclaimer of warranty and liability against Nasdaq for trading issues not arising from gross negligence or willful misconduct, amongst other standard terms.
  
    Corporate Governance Certification
    Certifies compliance with the governance requirements (listed above), with the specific rules and exceptions itemized in a check box format. 
  
    Check Payment Form
    All payments to Nasdaq may be made by check or wire. If a company elects to pay by check, it must do so with this form.
  
    Logo Submission Form
    To help investors recognize companies listed, Nasdaq requires a logo with each listing. The logo artwork submitted must meet specific requirements.

The details of these materials can be extremely nuanced, especially the listing application. Selecting the right application for your company and its goals is the difference between the application’s success and failure. Additionally, failure to disclose details regarding the company, including certain inquiries, investigations, lawsuits, litigation, arbitrations, hearings and other legal and administrative proceedings involving the company, its officers or directors or 10% or greater of its shareholders, can have long-term legal implications for a company. Even some contemplated events like private offerings must be disclosed.

The information within listing applications often brings follow-up questions from Nasdaq representatives. Companies should be prepared for a range of requests based on the Nasdaq’s analysis, including requests for Broadridge share range analysis, a certified shareholder list, income statements and balance sheet projections, confirmation of Sarbanes-Oxley certifications, and confirmation that auditors have reviewed quarterly filings.

Fees

Applicants must pay both entry fees and annual fees. Entry fees are based on the aggregate number of shares to be listed at the time of filing, regardless of the class, up to $75,000. A non-refundable $5,000 application fee is due with a company’s application and is deducted from the final entry fee assessed on the entry date.

Annual fees are assessed based on the total shares outstanding of all classes, as reported in the company’s most recent Nasdaq filing. The first year’s fee is prorated based upon the entry date, and subsequent years follow the standard fees below.

    Document
    Description
  
    Symbol Reservation Form
    Required to reserve or change your trading symbol. A symbol reservation request may be submitted up to two years in advance. Not required for non-convertible bonds, other than baby bonds.
  
    Listing Application
    Contains detailed information regarding the company and its offering. A variety of application forms are available depending on the type of and reason for listing. 
  
    Listing Agreement
     A 2-page document affirming the company's agreement to: ·      comply with all rules and regulations of The Nasdaq Stock Market
·      hold Nasdaq harmless from any third-party trademark infringement claims, and 
·      provide a disclaimer of warranty and liability against Nasdaq for trading issues not arising from gross negligence or willful misconduct, amongst other standard terms.
  
    Corporate Governance Certification
    Certifies compliance with the governance requirements (listed above), with the specific rules and exceptions itemized in a check box format. 
  
    Check Payment Form
    All payments to Nasdaq may be made by check or wire. If a company elects to pay by check, it must do so with this form.
  
    Logo Submission Form
    To help investors recognize companies listed, Nasdaq requires a logo with each listing. The logo artwork submitted must meet specific requirements.

Listing Services from the Law Offices of Destiny Aigbe, PLLC

Nasdaq listing applications can be lengthy and difficult. The Law Offices of Destiny Aigbe can help you understand the process, prepare you and your company, and complete application materials. Reach out to us today if you are interested in listing your company.

Guest UserOctober 29, 2020

Nasdaq Compliance

The Nasdaq Stock Market features three tiers of listed companies, namely: (1) The Nasdaq Global Select Market, (2) The Nasdaq Global Market, and (3) The Nasdaq Capital Market. These tiers are characterized by progressively stringent listing requirements, with the Nasdaq Global Select Market setting the highest standards for initial listings and the Nasdaq Capital Market serving as the entry-level tier, particularly suitable for most small-cap issuers.

To list securities on Nasdaq, a company must fulfill minimum listing requirements, encompassing defined criteria related to financial performance, liquidity, and corporate governance. Nasdaq retains extensive discretion in the listing process and reserves the right to reject an application, even if the technical prerequisites are satisfied, if it deems such denial essential to safeguard the interests of investors and the public.

After securing a listing on Nasdaq, a company is obligated to adhere to ongoing listing standards. To initiate the listing process, a company seeking inclusion on Nasdaq must diligently complete and submit a comprehensive listing application to Nasdaq. This application should include specific documents and information as outlined by Nasdaq's requirements.

Typically, the application process spans a duration of four to six weeks. Once the application is submitted, a Nasdaq analyst is designated as the primary liaison with the company. Within two to three weeks of submission, the company can expect to receive an initial comment letter. The comment and review process persists until a decision is reached on the approval or denial of the application. Similar to filing with the SEC, a meticulously prepared Nasdaq application tends to attract fewer comments and facilitates a more streamlined process. Generally, the company's securities counsel assumes a leading role, serving as the primary contact for preparing the application and engaging in communication with Nasdaq.

Similarly to the SEC review process, Nasdaq conducts a thorough examination of publicly accessible information pertaining to a company. This encompasses, but is not limited to, SEC filings, the company's website, management communications and speeches, as well as press releases. The iterative nature of the review process typically doesn't necessitate a formal protocol, and communication is commonly facilitated through email correspondence and phone calls.

Listing Criteria For Nasdaq
For a company to list its securities on Nasdaq, it must satisfy the following criteria:

Specific Initial Requirements:
- Quantitative Standards: Meeting defined thresholds for both quantitative and qualitative factors.
- Qualitative Standards: Fulfilling certain qualitative benchmarks.
Continuing Requirements:
- Quantitative Criteria: Adhering to ongoing quantitative benchmarks.
- Qualitative Criteria: Maintaining specified qualitative standards.

The initial quantitative thresholds are typically set at a higher level than those required for continued listing. This distinction aims to ensure that companies achieve a sufficient level of maturity before being listed. Additionally, Nasdaq imposes rigorous corporate governance standards that listed companies must adhere to throughout their tenure on the exchange.

Before formally submitting a comprehensive listing application, a company has the option to pursue a preliminary listing eligibility review. In this stage, the Listing Qualifications Staff conducts a thorough examination of the company's public filings to assess its compliance with numerical listing requirements. Additionally, the team evaluates the company's adherence to corporate governance requirements outlined in the Marketplace Rules ("Rules"). This preliminary review provides valuable insights into the company's eligibility for listing on Nasdaq before committing to the full application process.

Upon completion of the preliminary review, the Listing Qualifications Staff will make an assessment regarding whether the company meets the numerical listing criteria. Additionally, any corporate governance or regulatory concerns raised during this phase will be considered to determine their impact on the listing approval. It's important to note that while the preliminary review provides insights, final approval necessitates the submission of a formal listing application. This application undergoes a thorough examination by the NASDAQ Listing Qualifications Staff. Furthermore, the final approval process involves satisfactory compliance with specific qualitative reviews. This includes an examination of the regulatory history of the company's officers, directors, and significant shareholders. Meeting these criteria is integral to obtaining the final approval for listing on Nasdaq.

Financial And Liquidity Requirements

    Requirements

    Equity Standard
    Market Value of Listed Standard
    Net Income Standard

    Listing Rules

    5505(a)
and
5505(b)(1)
    5505(a)
and
5505(b)(2)
    5505(a)
and
5505(b)(3)
    
    Stockholders Equity

    	$5 million
    	$4 million
    	$4 million
    
    The market value of publicly held shares

    $15 million
    $15 million
    $
      5 million
    
    Operating History

    	Two years
    N/A
    N/A
    
    The market value of listed securities

    N/A
    $50 million
    N/A
    
    Net income from continuing operations (in the latest fiscal
a year or in two of the last three
fiscal years)

    N/A
    N/A
    $750,000
    
    Publicly held shares

    	1 million
    	1 million
    	1 million
    
    Bid Price

    	$4
    	$4
    	$4)
    
    Closing Price

    	$3
    	$2
    	$43
    
    Corporate Governance

    Yes
    Yes
    Yes
    
    Total Shareholders

    300
    300
    300

Corporate Governance Requirements

Across all three tiers of the Nasdaq Stock Market, corporate governance requirements remain largely consistent. The categories encompassing corporate governance standards include:

Distribution of Annual or Interim Reports
Independent Directors
Audit Committee
Compensation Committee
Nomination of Directors
Code of Conduct
Annual Meetings
Solicitation of Proxies
Quorum
Conflict of Interest
Shareholder Approval
Voting Rights

These governance elements play a crucial role in ensuring transparency, accountability, and ethical conduct within listed companies, irrespective of the specific tier within the Nasdaq Stock Market.

Companies seeking listing on Nasdaq must adhere to specific corporate governance standards, including the following:

Compensation Committee with Independent Directors:
- The company is required to establish a compensation committee comprised of independent directors.
- The committee must consist of at least two members.
- Rule 5605(d)(2)(A) introduces an additional independence test for compensation committee members.
Responsibility for Executive Compensation:
- The compensation committee is tasked with determining or recommending to the entire board the compensation of the chief executive officer (CEO) and all other executive officers.

These standards are designed to ensure a level of independence and scrutiny in the decision-making processes related to executive compensation within the company.

The Application And Documents

The Nasdaq application package encompasses several key components:

Symbol Reservation Form:
- Used to request the reservation of a specific trading symbol for the company.
Listing Application:
- Requires supplemental documents and details about the company's financials, operations, and other pertinent information.
Listing Agreement:
- A formal agreement outlining the terms and conditions of the listing on Nasdaq.
Corporate Governance Certification:
- A certification affirming the company's commitment to meeting Nasdaq's corporate governance standards.
Initial Application Fee:
- Payable via check or wire transfer, this fee is a prerequisite for initiating the listing process.
Logo Submission Form:
- Used for submitting the company's logo for use in Nasdaq's materials.

These application forms are completed through the Nasdaq website listing center, utilizing the online platform to facilitate the submission of supplemental and supporting documents. It is advisable to thoroughly review all required paperwork in advance, ensuring that the necessary information is readily available before initiating the application process.

Symbol Reservation Form

The symbol reservation form is a concise, one-page electronic form where applicants input information for Nasdaq's consideration. Nasdaq symbols, limited to 1-5 characters, adhere to guidelines established by the Intermarket Symbols Reservation Authority (ISRA). The ISRA system is designed to organize symbols efficiently, prevent duplication, and reduce programming and operational complexities. The ISRA operates within the framework of the NMS Symbology Plan, a plan utilized by Nasdaq.

Key details about the symbol reservation process:

Symbol Choices:
- The form allows applicants to propose three symbol choices in order of preference.
- While Nasdaq generally honors the first choice if available, it retains the authority to assign, rescind, or reassign a trading symbol at its discretion.
ISRA and Nasdaq Authority:
- The ISRA and Nasdaq have overarching authority in managing the assignment of symbols.
Additional Information:
- The form captures essential details about the issuer and the planned public offering.
- Information may include the name of the attorney, lead underwriter (if applicable), CEO and CFO names, yearly revenues, company website, and the sector in which the company operates.

Completion of this symbol reservation form initiates the process of securing a trading symbol on Nasdaq, and it's essential to provide accurate and comprehensive information to facilitate this stage of the listing application.

The Application

The Nasdaq listing application process is comprehensive and varies based on the circumstances surrounding the listing sought. There are twelve distinct listing applications catering to different situations, including changes of control, switches from other exchanges or markets, spin-offs, and initial public offerings (IPOs). Each application, spanning approximately seven pages, collects detailed information about the company, covering areas such as address, contact and billing details, securities attorney and auditor information, transfer agent particulars, and the company's officers and directors. Specific information on the company's securities, including type, par value, and cusip number, is also required.

Furthermore, the application mandates disclosure of legal proceedings involving the company, its officers or directors, or significant shareholders over the past ten years. This encompasses inquiries, investigations, lawsuits, litigation, arbitrations, and other legal and administrative proceedings. Documents supporting the backup and final disposition of these matters must be provided.

Regarding private offerings within the prior six months, including bridge financings, shelf registrations, and Regulation S offerings, the company is required to disclose such activities. Additionally, the application delves into the company's background, posing questions to ensure compliance with seasoning rules.

While Nasdaq retains the right to request relevant supporting documents, specific documents are mandatory based on the application type. For an uplisting from an existing U.S. market, the application must include letters from three market makers confirming their commitment to making a market in the subject securities. Other required documents include a listing agreement, a logo submission form, a corporate governance certification form, regulatory correspondence over the past 12 months, and shareholder confirmation documents. Nasdaq often seeks confirmation from the company's transfer agent regarding the eligibility of the security for the direct registration program (DRS).

During the review of an up listing application, Nasdaq may request additional information, such as a Broadridge share range analysis and NOBO list, a certified shareholder list, details about mitigating any going concerns or opinions, income statement and/or balance sheet projections for the next 12 months, and confirmation of Sarbanes Oxley Section 302 and 906 certifications by the company, among other inquiries related to compliance and financial matters.

The Listing Agreement

The Listing Agreement is a concise document, spanning two pages, serving as a formal affirmation of the company's commitment to adhere to all rules and regulations set forth by the Nasdaq Stock Market. It includes provisions for indemnifying and holding Nasdaq harmless from liability. Notable points in the agreement include:

Compliance Assurance:
- The company explicitly agrees to comply with all rules and regulations stipulated by the Nasdaq Stock Market.
Indemnification Clause:
- The company indemnifies Nasdaq, meaning it undertakes to compensate or reimburse Nasdaq for any losses or damages incurred. This includes harm resulting from third-party trademark infringement claims related to the company's symbol and logo, as well as Nasdaq's use of the same.
Disclaimer of Warranty and Liability:
- The agreement contains a disclaimer of warranty and liability against Nasdaq for trading issues, with the exception of those resulting from gross negligence or willful misconduct.

This agreement establishes a clear framework for the relationship between the listed company and Nasdaq, emphasizing the company's commitment to regulatory compliance while providing indemnification for certain specified matters and delineating the scope of Nasdaq's liability.

Corporate Governance Certification Form

The corporate governance certification form certifies compliance with the governance requirements related to an audit committee, director nomination process, compensation committee, board composition, executive sessions, quorum, and codes of conduct. Where an exemption applies, the form requires specification of the exemption terms. The document specifies the different rules and exceptions in a check-the-box format.

Logo Submission Form

The logo submission form contains the guidelines for the logo and affirms Nasdaq’s rights to use the same. Nasdaq uses company logos in its marketing materials, on the MarketSite Video Wall and Tower, and websites.

Fees

Entry fees are based upon the aggregate number of shares to be listed at the time of initial listing, regardless of class, with a maximum cap of $75,000. Fees are assessed on the entry date in The Nasdaq Capital Market, except for $5,000, representing a non-refundable application fee. This fee must be submitted with the company’s application.

Nasdaq does not charge application or entry fees for any securities transferred from a national securities exchange.

Benefits Of Trading On An Exchange

There are many benefits to trading on an exchange instead of the OTC Markets. The most significant benefits to a business are the ability to attract analyst coverage and institutional investors and the corresponding increase in liquidity that comes with both. Stocks that trade on Nasdaq tend to have a lower bid/offer spread — again encouraging trading volume and liquidity. Exchange-traded securities are exempt from the penny stock definition, allowing more market maker and broker-dealer participation. As further explained below, a broker-dealer cannot recommend a penny stock transaction to its retail clients. Therefore, no analysts, financial advisors, or institutional investors make recommendations for purchases of penny stocks.

As an aside, this is one of the reasons that OTC Markets created the OTCQX market tier, which does not list penny stocks. It is also why the small-cap industry is pushing for a supported valid venture exchange (for further reading.

In today’s world, depositing stock and/or trade-in non-exchange traded securities is increasingly difficult. Despite the congressional efforts and SEC rulemaking in support of small-cap capital formation (for example, the JOBS Act, including the emerging growth company regulations, new Regulation A+ and Title III Crowdfunding and the new FAST Act), through enforcement and investigative proceedings, both the SEC and FINRA continue to apply pressure on broker-dealers, clearing firms and transfer agents to reduce the secondary trading and free flow of penny stocks. For more information on difficulties in depositing stocks.

Further On Penny Stocks

NASDAQ and NYSE MKT traded securities are exempted from the definition of a “penny stock” due to the initial and ongoing listing standards. Penny stock rules focus on broker-dealers’ activity in effectuating trades in penny stocks. The Securities Enforcement Remedies and Penny Stock Reform Act of 1990 (the “Penny Stock Act”) prohibits broker-dealers from effecting transactions in penny stocks unless they comply with the requirements of Section 15(h) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). The rules promulgated thereunder, particularly Exchange Act rules 15g-1 through 15g-100 (the “penny stock rules”).

Section 15(h) of the Exchange Act provides that no broker or dealer may effectuate a customer’s purchase or sale of any penny stock unless such broker or dealer.

Approves the customer for the specific penny stock transaction and receives a written agreement to the transaction from the customer.
Furnishes the customer a risk disclosure document describing the risks of investing in penny stocks.
Discloses to the customer the current market quotation, if any, for the penny stock, including the bid and ask prices and the number of shares that apply to such bid and ask prices.
Discloses to the customer the amount of compensation the firm and its broker will receive for the trade.

In addition, after executing the sale, a broker-dealer must send its customer monthly account statements showing the market value of each penny stock held in the customer’s account.

Moreover, brokers and dealers subject to the penny stock rules are subject to additional disclosure requirements outlined in Rules 15g-2 through 15g-9. For my information on penny stocks and the rules affecting broker-dealer activity.

Securities Lawyer Blog

Listing on The Nasdaq Stock Market

Financial & Liquidity Requirements

Listing Reverse Mergers

Corporate Governance

The Process

Application Materials

Fees

Listing Services from the Law Offices of Destiny Aigbe, PLLC

Listing Criteria For NasdaqFor a company to list its securities on Nasdaq, it must satisfy the following criteria:

Licensed in District of Columbia, State of Colorado, US District Court for the District of Columbia, US District Court for the District of Colorado, with pro hac vice Admission for the State of Maryland and Virginia.

Listing Criteria For Nasdaq
For a company to list its securities on Nasdaq, it must satisfy the following criteria: