NASDAQ Capital Markets Listing Standards

The NASDAQ Stock Market operates with three distinct tiers for listed companies: (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 standards. The NASDAQ Global Select Market features the highest initial listing standards, while the NASDAQ Capital Market serves as the entry-level tier, often suitable for most small-cap issuers.

For a company to list its securities on NASDAQ, it must fulfill minimum listing requirements, which encompass specified criteria related to financial performance, liquidity, and corporate governance. It's crucial to note that NASDAQ retains broad discretion over the listing process. Even if a company meets the technical requirements, NASDAQ reserves the right to deny an application if it deems such denial necessary to protect investors and the public interest. This discretionary power allows NASDAQ to consider various factors beyond the strictly technical criteria to ensure the overall health and integrity of the market.

After a company is listed on NASDAQ, it is obligated to meet continued listing standards to maintain its status. However, the process of initially getting listed involves the completion and submission of a listing application to NASDAQ. This application typically includes specific documents and information as required by NASDAQ's listing criteria. The submission of a comprehensive listing application is a crucial step in the process of becoming listed on NASDAQ, and it involves providing detailed information about the company's financials, operations, governance, and other relevant aspects.

The NASDAQ application process typically spans six to eight weeks. Upon the submission of the application, a dedicated NASDAQ analyst is assigned to the file to serve as the primary point of contact with the company. Within two to three weeks of submission, the company receives an initial comment letter. The comment and review process then unfolds, continuing until the application either receives approval or is denied.

Similar to the SEC review process, NASDAQ conducts a thorough examination of publicly available information about the company. This includes, but is not limited to, SEC filings, the company's website, management communications and speeches, and press releases. A well-prepared NASDAQ application tends to result in fewer comments and a more streamlined process.

During the review, the company's securities counsel typically takes the lead role, acting as the primary liaison in preparing the application and communicating with NASDAQ. The communication process, akin to the SEC review, is often informal and involves email correspondence and phone calls, contributing to a collaborative and efficient exchange of information between the company and NASDAQ.

Listing Criteria For NASDAQ Capital Markets

To list its securities on NASDAQ Capital Markets, a company is required to meet: (a) certain initial quantitative and qualitative requirements and (b) certain continuing quantitative and qualitative requirements. The quantitative listing thresholds for initial listing are generally higher than for continued listing, thus helping to ensure that companies have reached a sufficient level of maturity prior to listing. NASDAQ also requires listed companies to meet stringent corporate governance standards.

    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
    
    Unrestricted publicly held shares

    1 million
    1 million
    1 million
    
    Bid Price

    	$4
    	$4
    	$4)
    
    Closing Price

    	$3
    	$2
    	$43
    
    Corporate Governance

    Yes
    Yes
    Yes
  
    Unrestricted publicly round lot shares

    300
    300
    300
    
    Market Makers

    3
    3
    3
    
    Listing Fee

    Application fee – $5,000 first year annual fee depends on listed shares and ranges from $50,000 – $75,000
    Application fee – $5,000 first year annual fee depends on listed shares and ranges from $50,000 – $75,000
    Application fee – $5,000 first year annual fee depends on listed shares and ranges from $50,000 – $75,000
    
    Total IPO Expenses

    Approximately $750,000
    Approximately $750,000
    Approximately $750,000

In addition to the previously mentioned requirements, if a security is actively trading in the U.S. over-the-counter market as of the date of application for listing on NASDAQ, it must meet certain criteria related to trading volume. Specifically, the security is required to have a minimum average daily trading volume of 2,000 shares (including the trading volume of the underlying security on the primary market concerning an American Depositary Receipt or ADR) over the 30-trading-day period immediately preceding the listing application. Moreover, trading must have occurred on more than half of those 30 days, unless the security is listed on the Exchange as part of a firm commitment underwritten public offering that amounts to at least $4 million. This criterion helps ensure a certain level of liquidity and market activity for securities transitioning to NASDAQ from the over-the-counter market.

A company that principally administers its business in a Restrictive Market, and is conducting an initial public offering, must offer a minimum amount of securities in a firm commitment underwritten public offering in the U.S. to public holders that (i) will result in gross proceeds to the company of at least $25 million or (ii) will represent at least 25% of the company’s post-offering Market Value of Listed Securities, whichever is lower. A company that is conducting a business combination with an entity that principally administers its business in a Restrictive Market must have a minimum market value of unrestricted publicly held shares following the business combination equal to the lesser of (i) $25 million or (ii) 25% of the post-business combination entity’s market value of listed securities. A “Restrictive Market” is one in which NASDAQ determines to have secrecy laws, blocking statutes, national security laws or other laws or regulations restricting access to information by regulators of U.S.-listed companies in such jurisdiction. In determining whether a company’s business is principally administered in a Restrictive Market, NASDAQ may consider the geographic locations of the company’s: (i) Principal business segments, operations or assets; (ii) Board and shareholders’ meetings; (iii) Headquarters or principal executive offices; (iv) Senior management and employees; and (v) Books and records. A jurisdiction that does not provide the PCAOB with access to conduct inspections of public accounting firms that audit NASDAQ-listed companies is a Restrictive Market. Currently the only Restrictive Markets are China and Hong Kong.

    
Corporate Governance Requirements

    Description

    Distribution of Annual or Interim Reports

    The company must make its annual and interim reports available to shareholders, either by mail or electronically through the company’s website.

The Exchange has various requirements regarding a company’s independent directors and audit committee. Although generally the company’s board of directors is required to have a majority of independent directors, there are several exceptions, such as for a controlled company or foreign private issuers.
   
    Independent Directors

    	The company is required to have an audit committee consisting solely of independent directors who also satisfy the requirements of SEC Rule 10A-3 and who can read and understand fundamental financial statements. The audit committee must have at least three members. One member of the audit committee must have experience that results in the individual’s financial sophistication.
    
    Audit Committee

    The company is required to have a compensation committee consisting solely of independent directors and having at least two members. The compensation committee must determine, or recommend to the full board for determination, the compensation of the chief executive officer and all other executive officers. Controlled companies and foreign private issuers are exempt from this requirement.
    
    Compensation of Executive Officers

    	The company is required to have a compensation committee consisting solely of independent directors and having at least two members. The compensation committee must determine, or recommend to the full board for determination, the compensation of the chief executive officer and all other executive officers. Controlled companies and foreign private issuers are exempt from this requirement.
    
    Nomination of Directors

    Independent directors must select or recommend nominees for directors. Controlled companies and foreign private issuers are exempt from this requirement.
    
    Code of Conduct

    The company must adopt a code of conduct applicable to all directors, officers and employees.
    
    Annual Meetings

    	The company is required to hold an annual meeting of shareholders no later than one year after the end of its fiscal year.
The company is required to solicit proxies for all shareholder meetings.
    
    Quorum

    	The company must provide for a quorum of not less than 33 1/3% of the outstanding shares of it voting stock for any meeting of the holders of its common stock.
    
    Conflict of Interest

    	The company must conduct appropriate review and oversight of all related party transactions for potential conflict of interest situations.
    
    Shareholder Approval

    	The company must conduct appropriate review and oversight of all related party transactions for potential conflict of interest situations.
 Shareholder Approval	The company is required to obtain shareholder approval of certain issuances of securities, including:
·        Acquisitions where the issuance equals 20% or more of the pre-transaction outstanding shares, or 5% or more of the pre-transaction outstanding shares whena related party has a 5% or greater interest in the acquisition target/span>
    
    Voting Rights

    Corporate actions or issuances cannot disparately reduce or restrict the voting rights of existing shareholders.

The NASDAQ Application and Documents

The NASDAQ application package includes the following:

A symbol reservation form
The listing application (which requires supplemental documents)
The listing agreement
The corporate governance certification
The initial application fee, payable via check or wire transfer
A logo submission form

All the application forms are completed online at the NASDAQ website listing center. The online platform allows for uploading supplemental and supporting documents. All papers should be reviewed in advance, and the requisite information should be readily available before applying.

NASDAQ Symbol Reservation Form

The symbol reservation form is a one-page fill-in electronic form. NASDAQ symbols must be 1-5 characters and are governed by the Intermarket Symbols Reservation Authority (ISRA), designed to help organize symbols, prevent duplication, and reduce programming and operational complexities. The symbol reservation form requests three symbol choices in order of preference. Although Nasdaq will likely give the first choice if available, it has full authority to assign, rescind, or reassign a trading symbol at any time.

An Overview Of The NASDAQ Application

NASDAQ has several listing applications depending on the circumstances of the listing sought. Twelve different listing applications vary from an application where there has been a change of control, to switching from another exchange or other U.S. market such as the OTC Markets, to spin-offs and of course an IPO. Each listing application is approximately seven pages long and requests detailed basic information about the company such as address, contact and billing information, securities attorney and auditor information, transfer agent, and officers and directors. In addition, the application form requests information on the specific securities, including type, par value, and cusip number.

A NASDAQ application also requires disclosure of particular inquiries, investigations, lawsuits, litigation, arbitrations, hearings, and other legal and administrative proceedings involving the company, its officers or directors, or ten percent (10%) or more significant shareholders. Related to the company, the application requires disclosure of any proceedings within the ten years preceding the application date (i) that were initiated by any regulatory civil or criminal agency; (ii) which are material to the company and were asserted under state or federal securities, banking, insurance, tax or bankruptcy laws; or (iii) which are material to the company and allege fraud, deceit or misrepresentation. Backup and final disposition documents must be provided.

Related to officers, directors, or ten percent (10%) or more significant shareholders, the application requires disclosure of any proceedings within the ten years preceding the application date (i) that were initiated by any regulatory civil or criminal agency; or (ii) which allege fraud, deceit or misrepresentation and requested damages over $100,000. Again, backup and final disposition documents must be provided.

Disclosure is required regarding any matters that fall within the category requested, including all inquiries, even where the inquiring party would not have jurisdiction to pursue a claim. Accordingly, investigations by FINRA’s Office of Fraud Detection and Market-related to the trading activity and press releases, although usually benign, must be disclosed.

The application includes additional questions related to the company’s background, including questions designed to ensure compliance with the seasoning rules.

Moreover, all private offerings, including bridge financings, shelf registrations, and Regulation S offerings, that “are contemplated or have been consummated within the prior six months” must be disclosed. A planned incomplete or busted offering may result in additional questions; accordingly, care should be given to launching private offerings before a planned listing or uplisting.

Although NASDAQ has the right to request any supporting documents it deems relevant, certain supporting documents must be included with the application. The types of supporting documents vary depending on the application type.

An application for an uplisting from an existing U.S. market, such as the OTC Markets, must include the following:

Letters from 3 market makers confirming their agreement to make a market in the subject securities upon acceptance of a NASDAQ listing
A listing agreement
A logo submission form
A corporate governance certification form
Regulatory correspondence over the past 12 months
Shareholder confirmation documents

Moreover, in an uplisting application, NASDAQ frequently requests written confirmation from the company’s transfer agent that the security is eligible for DRS (direct registration program).

Other common follow-up questions from NASDAQ when reviewing an uplisting application include:

A request for a Broadridge share range analysis and NOBO list.
A request for a certified shareholder list.
Questions related to the mitigation of any going concerns or opinions.
A request for income statement and/or balance sheet projections for the next 12 months.
Confirmation that all Sarbanes Oxley Section 302 and 906 certifications have been made.
Confirmation that the auditors have reviewed all quarterly filings by SAS 100.

We can help ensure you understand and complete everything you need to in your application. Speak with an attorney from Anthony L.G., PLLC, by calling 877-541-3263.

The Listing Agreement

The Listing Agreement is a simple 2-page agreement affirming the company’s agreement to comply with all rules and regulations of the NASDAQ Stock Market and indemnifying and holding NASDAQ harmless from liability. In particular, a listed company has NASDAQ harmless and agrees to indemnify the exchange from any harm resulting from third-party trademark infringement claims related to the company’s symbol and logo and NASDAQ’s use of the same. In addition, the listing agreement contains a disclaimer of warranty and liability against NASDAQ for trading issues other than those resulting from gross negligence or willful misconduct.

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 web

NASDAQ’s Annual Fees

Annual fees are based on the company’s Total Shares Outstanding (“TSO”) for all classes of stock listed on the Capital Market, as reported in the company’s latest filing on record with NASDAQ. In the first year of listing, the company’s annual fee will be prorated based on the listing date.

For a company transferring to the NASDAQ Capital Market from The NASDAQ Global Select Market or Global Market, NASDAQ will apply a credit toward the balance of the company’s new annual fee based on the yearly price already paid.
sites.

Gayatri GuptaNovember 23, 2023

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

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

NASDAQ Capital Markets Listing Standards

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: