The Nasdaq Stock Market has three distinctive tiers: The Nasdaq Global Select Market®, The Nasdaq Global Market® and The Nasdaq Capital Market®. Applicants must satisfy certain financial, liquidity and corporate governance requirements to be approved for listing on any of these market tiers.
The initial financial and liquidity requirements for the Nasdaq Global Select Market are more stringent than those for the Nasdaq Global Market and likewise, the initial listing requirements for the Nasdaq Global Market are more stringent than those for the Nasdaq Capital Market. Corporate governance requirements are the same across all Nasdaq market tiers.
It is important to note that even though a company’s securities meet all enumerated criteria for initial inclusion, Nasdaq may deny initial listing, or apply additional conditions, if necessary to protect investors and the public interest.
The Nasdaq has four sets of listing requirements. Each company must meet at least one of the four requirement sets, as well as the main rules for all companies.
Main Rules for All Companies:
- Each company must have a minimum of 1,250,000 publicly traded shares outstanding upon listing, excluding those held by officers, directors, or any beneficial owners of more than 10% of the company.
- The regular bid price of shares of the company’s stock at the time of listing must be at least $4.00.
- However, a company may qualify under a closing price alternative of $3.00 or $2.00 if the company meets varying requirements.
- There must be at least three (or four depending on the criteria) market makers for the stock.
- In addition to these requirements, companies must meet all of the criteria under at least one of the following standards.
At Least Achieved 1 of the 4 Standards:
Standard No. 1: Earnings
The company must have aggregate pre-tax earnings in the prior three years of at least $11 million, in the previous two years at least $2.2 million, and no single year in the prior three years can have a net loss.
Standard No. 2: Capitalization With Cash Flow
The company must have a minimum aggregate cash flow of at least $27.5 million for the past three fiscal years, with no negative cash flow in any of those three years. Also, its average market capitalization over the prior 12 months must be at least $550 million, and revenues in the previous fiscal year must be $110 million, minimum.
Standard No. 3: Capitalization With Revenue
Companies can be removed from the cash flow requirement of the second standard if its average market capitalization over the past 12 months is at least $850 million and revenues over the prior fiscal year are at least $90 million.
Standard No. 4: Assets With Equity
Companies can eliminate the cash flow and revenue requirements, and decrease its marketing capitalization requirements to $160 million if their total assets total at least $80 million and their stockholders’ equity is at least $55 million.
The Bottom Line
A company has four ways to get listed on the NASDAQ, depending on the underlying fundamentals of the company. If a company does not meet certain criteria, such as the operating income minimum, it has to make it up with larger minimum amounts in another area, like revenue. This helps to improve the quality of companies listed on the exchange.
After a company gets listed on the market, it must maintain certain standards to continue trading. Failure to meet the specifications set out by the stock exchange will result in its delisting. Falling below the minimum required share price, or market capitalization is one of the major factors triggering a delisting. The exact details of delisting depend on the exchange.