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Public Market Listing Standards

One of the bankers that I work with often once asked me if I had written a blog with a side-by-side comparison of listing on Nasdaq vs. the OTC Markets and I realized I had not, so it went on the list and with the implementation of the new 15c2-11 rules, now seems a very good time to tackle the project.  I’ve added NYSE American to the list as well.

Quantitative and Liquidity Listing Standards

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 Securities

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
Market value of unrestricted publicly held shares $15 million $15 million $5 million
Operating history 2 years N/A N/A
Market value of listed securities N/A $50 million* N/A
Net income from continuing operations (in the latest fiscal 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 or

Closing Price**

$4

$3

$4

$2

$4

$3

Corporate governance Yes Yes Yes
Unrestricted round lot shareholders*** 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

* Currently traded companies qualifying solely under the Market Value Standard must meet the $50 million market value of listed securities and the applicable bid price requirement for 90 consecutive trading days before applying.

** To qualify under the closing price alternative, a company must have: (i) average annual revenues of $6 million for three years, or (ii) net tangible assets of $5 million, or (iii) net tangible assets of $2 million and a 3-year operating history, in addition to satisfying the other financial and liquidity requirements listed above.

*** Securities subject to resale restrictions for any reason are excluded from the calculation of publicly held shares, market value of publicly held shares and round lot shareholders. In addition, except for SPACs listing under IM-5101-2, at least half of the minimum required number of round lot holders must each hold unrestricted securities with a minimum value of $2,500.

**** Includes legal, accounting, audit, underwriter expense reimbursement, SEC filing fee, road show expenses, EDGAR fees, Nasdaq listing fee, FINRA filing fee and DTC eligibility.  Does not include underwriter commission/discount.

In addition to the above requirements, if the security is trading in the U.S. over-the-counter market as of the date of application, the security must have a minimum average daily trading volume of 2,000 shares (including trading volume of the underlying security on the primary market with respect to an ADR), over the 30-trading-day period prior to listing, with trading occurring on more than half of those 30 days, unless such security is listed on the Exchange in connection with a firm commitment underwritten public offering of at least $4 million.

Companies seeking listing in connection with a Regulation A offering must, at the time of approval of the listing, have a minimum operating history of two years.

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.

NYSE American (MKT)

Like Nasdaq, to list its securities on the NYSE MKT, a company is required to meet: (a) certain initial quantitative and qualitative requirements and (b) certain continuing quantitative and qualitative requirements.  Unlike Nasdaq, the NYSE MKT does not exclude restricted securities from its liquidity standards, including round lot shareholders, market value of publicly held shares or total shares outstanding.

Criteria Standard  1 Standard  2 Standard  3 Standard  4a Standard 4b
Pre-tax Income(1) $750,00 N/A N/A N/A N/A
Market capitalization N/A N/A $50 million $75 million

 

N/A
Total assets and total revenues N/A N/A N/A N/A $75 million in total assets

and $75 million in revenues(1)

Market value of public float(2) $3 million $15 million $15 million $20 million $20 million
Minimum Price $3 $3 $2 $3 $3
Operating History N/A 2 years N/A N/A N/A
Shareholders’ Equity $4 million $4 million $4 million N/A N/A
Public shareholders/Public float (shares)(2) Option 1: 800/500,000
Option 2: 400/1,000,000
Option 3: 400/500,000(3)
Listing Fee $5,000 application fee and annual fee of either $50,000 or $75,000 depending on number of shares
Total IPO Expense Approximately $750,000 – Includes legal, accounting, audit, underwriter expense reimbursement, SEC filing fee, road show expenses, EDGAR fees, NYSE listing fee, FINRA filing fee and DTC eligibility.  Does not include underwriter commission/discount.

(1)  Required in the latest fiscal year, or two of the three most recent fiscal years.

(2)  Public shareholders and public float do not include shareholders or shares held directly or indirectly by any officer, director, controlling shareholder or other concentrated (i.e., 10 percent or greater), affiliated or family holdings.

(3)  Option 3 requires a daily trading volume of at least 2,000 shares during the six months prior to listing.

OTCQX AND OTCQB

OTC Markets also has qualitative and quantitative listing standards which increase based on the tier being quoted on and whether a company reports to the SEC or alternatively to OTC Markets.  Note I did not include the listing qualifications for the OTCQX Premier, which have increased qualitative standards across the board.

Criteria OTCQB U.S. OTCQB International OTCQX U.S. OTCQX International
Audit Requirements Audited Financials in accordance with U.S. GAAP by PCAOB auditor.

 

One year only for Alternative Reporting

Audited under qualified foreign exchange requirements which must be either IFRS, home country GAAP or U.S. GAAP Audited Financials in accordance with U.S. GAAP by PCAOB auditor

 

One year only for Alternative Reporting

Audited under qualified foreign exchange requirements which must be either IFRS, home country GAAP or U.S. GAAP
Reporting and Disclosure SEC reporting, Regulation A reporting, Bank Reporting or Alternative Reporting Listed on a qualified foreign exchange and compliant with Exchange Act Rule 12g3-2(b) or be SEC reporting

 

If foreign exchange, must post reports on OTC Markets through the OTCIQ System.

SEC reporting, Regulation A reporting, Bank Reporting or Alternative Reporting Listed on a qualified foreign exchange and compliant with Exchange Act Rule 12g3-2(b) or be SEC reporting

 

If foreign exchange, must post reports on OTC Markets through the OTCIQ System.

Minimum Bid Price* $.01 $.01 $.25 $.25
Round Lot Shareholders 50 50 50 50
Freely tradeable Public Float** 10% of the total issued and outstanding trading security 10% of the total issued and outstanding trading security 10% of the total issued and outstanding trading security 10% of the total issued and outstanding trading security
Transfer Agent Must participate in Transfer Agent Verified Share Company Must be SEC registered Must participate in Transfer Agent Verified Share Company Must be SEC registered
OTC Sponsor N/A Must have letter of introduction from qualified OTC Markets Sponsor Must have letter of introduction from qualified OTC Markets Sponsor Must have letter of introduction from qualified OTC Markets Sponsor
Company Profile Submit verified company profile through OTCIQ Submit verified company profile through OTCIQ Submit verified company profile through OTCIQ Submit verified company profile through OTCIQ
Certification Post certification signed by CEO/CFO verifying officers, directors, affiliates and advisors Post certification signed by CEO/CFO verifying officers, directors, affiliates and advisors Post certification signed by CEO/CFO verifying officers, directors, affiliates and advisors Post certification signed by CEO/CFO verifying officers, directors, affiliates and advisors
Penny Stock Rule*** N/A N/A Must not be a penny stock Must not be a penny stock
Market Capitalization N/A N/A $10 million $10 million
Market Makers N/A N/A N/A 1
Dilution Risk (for more on this, see HERE) A key consideration in the application process A key consideration in the application process A key consideration in the application process A key consideration in the application process
Listing Fee $5,000 application fee; $14,000 a year; beginning Jan 1, 2022 – $14,220 a year $5,000 application fee; $14,000 a year; beginning Jan 1, 2022 – $14,220 a year $5,000 application fee; $23,000 a year; beginning Jan 1, 2022 – $23,400 a year $5,000 application fee; $23,000 a year; beginning Jan 1, 2022 – $23,400 a year
IPO Expenses**** Approximately $400,000 Approximately $60,000 Approximately $400,000 Approximately $75,000

* Must meet the minimum closing bid price for each of the 30 consecutive days immediately preceding the company’s application.  If listing in conjunction with an IPO, OTC Markets may exempt this requirement but the company must have a market maker meet the minimum closing bid price quote within 3 days of confirmation of quotation eligibility under Rule 15c2-11.

** OTC Markets may grant an exemption to this requirement if (i) at least 5% of the public float is freely tradeable and has a market value of $2 million or more; or (ii) the company has a separate class of securities traded on a national exchange.

*** Company must be penny stock exempt based on audited financials dated within 15 months of the listing.  Must meet one of the following penny stock exemptions: (i) Net tangible assets – at least $5 million if less than 3 years of operations or at least $2 million if 3+ years of operations; (ii) Revenue – $6 million average for last 3 years; or (iii) Bid price of $5 or more and one of the following (a) net income of $500,000; (b) net tangible assets of $1 million; (c) revenue of $2 million or (d) total assets of $10 million.

**** Includes legal, accounting, audit, underwriter expense reimbursement, SEC filing fee, road show expenses, EDGAR fees, listing fee, FINRA filing fee and DTC eligibility.  Does not include underwriter commission/discount.  For international companies, presumes no concurrent capital raise.

Qualitative and Governance Standards

Nasdaq and NYSE MKT

Companies must meet the following corporate governance standards:

Corporate Governance Requirement 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.
 

Independent Directors

 

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.

 

For a review of the new Nasdaq board diversity rules, see HERE.

 

For a review of Nasdaq board independence standards, see – HERE.

 

For a review of the NYSE MKT board independence standards, see – HERE

 

 

 

 

Audit Committee

 

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.

 

For a drill down on Nasdaq audit committee requirements, see – HERE..

 

For a drill down on NYSE MKT audit committee requirements, see – HERE.

 

 

 

 

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.

 

 

Solicitation of Proxies

 

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 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 (see HERE)

·         Issuances resulting in a change of control (see HERE)

·         Equity compensation (see HERE)

·         Private placements where the issuance equals 20% or more of the pre-transaction outstanding shares at a price less than the greater of book or market value (see HERE)

 

Voting Rights

 

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

 

For a review of the voting rights rules, see – HERE.

OTC Markets

Requirement OTCQB U.S. OTCQB International OTCQX U.S. OTCQX International
Bankruptcy or Reorganization Proceedings Company does not qualify Company does not qualify Company does not qualify Company does not qualify
Independent Directors If Alternative Reporting must have at least 2 independent directors N/A 2 independent directors N/A
Audit Committee If Alternative Reporting must have a audit committee with a majority of independent directors N/A Audit committee with a majority of independent directors N/A
Shell Company or Blank Check Company N/A N/A Company does not qualify N/A
Shareholder Meetings N/A N/A Must conduct annual shareholder meeting and make financial reports available to its shareholders at least 15 calendar days prior to such meeting N/A

Application Process

Regardless of whether you are applying to list on the OTC Markets or a national securities exchange, the process is similar.  All venues conduct background checks on officers/directors/significant shareholders, conduct thorough due diligence on the applicant company and engage in a comment and response process.  In addition, both the Nasdaq and NYSE MKT consider the companies ability to maintain the continued listing requirements in the future, generally for a minimum period of 18 months (6 quarters) considering assets, cash flows, burn rates, and reductions in shareholder’s equity.

The Author

Laura Anthony, Esq.
Founding Partner
Anthony L.G., PLLC
A Corporate Law Firm
LAnthony@AnthonyPLLC.com

Securities attorney Laura Anthony and her experienced legal team provide ongoing corporate counsel to small and mid-size private companies, OTC and exchange traded public companies as well as private companies going public on the Nasdaq, NYSE American or over-the-counter market, such as the OTCQB and OTCQX. For more than two decades Anthony L.G., PLLC has served clients providing fast, personalized, cutting-edge legal service.  The firm’s reputation and relationships provide invaluable resources to clients including introductions to investment bankers, broker-dealers, institutional investors and other strategic alliances. The firm’s focus includes, but is not limited to, compliance with the Securities Act of 1933 offer sale and registration requirements, including private placement transactions under Regulation D and Regulation S and PIPE Transactions, securities token offerings and initial coin offerings, Regulation A/A+ offerings, as well as registration statements on Forms S-1, S-3, S-8 and merger registrations on Form S-4; compliance with the Securities Exchange Act of 1934, including registration on Form 10, reporting on Forms 10-Q, 10-K and 8-K, and 14C Information and 14A Proxy Statements; all forms of going public transactions; mergers and acquisitions including both reverse mergers and forward mergers; applications to and compliance with the corporate governance requirements of securities exchanges including Nasdaq and NYSE American; general corporate; and general contract and business transactions. Ms. Anthony and her firm represent both target and acquiring companies in merger and acquisition transactions, including the preparation of transaction documents such as merger agreements, share exchange agreements, stock purchase agreements, asset purchase agreements and reorganization agreements. The ALG legal team assists Pubcos in complying with the requirements of federal and state securities laws and SROs such as FINRA for 15c2-11 applications, corporate name changes, reverse and forward splits and changes of domicile. Ms. Anthony is also the author of SecuritiesLawBlog.com, the small-cap and middle market’s top source for industry news, and the producer and host of LawCast.com, Corporate Finance in Focus. In addition to many other major metropolitan areas, the firm currently represents clients in New York, Los Angeles, Miami, Boca Raton, West Palm Beach, Atlanta, Phoenix, Scottsdale, Charlotte, Cincinnati, Cleveland, Washington, D.C., Denver, Tampa, Detroit and Dallas.

Ms. Anthony is a member of various professional organizations including the Crowdfunding Professional Association (CfPA), Palm Beach County Bar Association, the Florida Bar Association, the American Bar Association and the ABA committees on Federal Securities Regulations and Private Equity and Venture Capital. She is a supporter of several community charities including siting on the board of directors of the American Red Cross for Palm Beach and Martin Counties, and providing financial support to the Susan Komen Foundation, Opportunity, Inc., New Hope Charities, the Society of the Four Arts, the Norton Museum of Art, Palm Beach County Zoo Society, the Kravis Center for the Performing Arts and several others. She is also a financial and hands-on supporter of Palm Beach Day Academy, one of Palm Beach’s oldest and most respected educational institutions. She currently resides in Palm Beach with her husband and daughter.

Ms. Anthony is an honors graduate from Florida State University College of Law and has been practicing law since 1993.

Contact Anthony L.G., PLLC. Inquiries of a technical nature are always encouraged.

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