Up-listing from an OTC to a National Exchange

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Listing on NASDAQ or NYSE can be a ticket to new growth for many companies. However, it is difficult to meet the listing requirements for such large national exchanges. Many businesses find that they simply have no hope of premiering on such markets after their IPOs. For those companies, there are OTC markets. OTC markets are organized to provide investors and liquidity to small public companies. They cannot compete with the size of the national exchanges, nor do they try. Instead, they cater to smaller investors and smaller businesses looking to grow. They have lower listing requirements and lower investor standards.
Often times, a company will premier on OTC markets and up-list to a larger one when they are ready. There are two main reasons that companies up-list. First, they do it because they have outgrown OTC markets, and want to perpetuate further growth. These companies are often looking to expand, and increase market share. In fact, a company’s up-listing event is sometimes referred to as its second IPO. In these cases, it is common to raise capital with an underwriter or investment-banker in conjunction with the up-listing event.
The second main reason that companies up-list is simply that they qualify to do so. These companies are more passive in their up-listing, and may not contact an underwriter or investment banker. They realize that there are benefits to being listed on national exchanges other than the increased access to capital. There is a certain prestige which comes from such a listing, which opens up marketing avenues. For brokerages, there is also less liquidity risk with higher trading volumes and the ability to deposit shares into brokerages.
The OTC Markets operates differently than regular securities exchanges. They aren’t regulated by the SEC directly, but through FINRA instead. Some types of securities you can trade on the OTC include:
As a company just starting its growing phase, you might be wondering what the benefits of trading on the OTC are.
Even with all these benefits, some companies still might benefit from up-listing to an exchange like NASDAQ or NYSEÂ at some point. This can open up more opportunities for investment and increase the company’s visibility, leading to even greater growth.
In addition to outgrowing OTC markets and qualifying for up-listing, there are several factors to consider when deciding if it’s time to up-list from an OTC to a national exchange. These include the following.
NASDAQ and NYSE are two of the three most well-known national exchanges in the United States. The NASDAQ is a computerized, dealer market that trades securities electronically, while the NYSE is an auction market that matches buyers and sellers through brokers. Listing on one of these exchanges will provide companies with access to additional capital, more trading volume, and higher stock prices.
Reaching your second IPO and entering the NASDAQ will require your company to meet certain listing standards. You must have a history of operations and financial performance, adequate capitalization, appropriate corporate governance practices, and shareholder approval. Some of the listing requirements for entering NASDAQ include:
For more information on NASDAQ listings, click here.
In order to be eligible for listing on the NYSE, a company must meet certain financial and other requirements. These are a bit more varied than NASDAQ’s requirements and can be found here. However, the requirements include:
The board of directors is not easy to fill. Ideally, it should contain seasoned individuals with board experience. A few of these should have in-depth knowledge of the industry. However, not every company can have a perfect board. At the least, an up-listing company should strive to have a talented chair and one industry expert. This can help grease the wheels of the company during transition, and after. If no industry expert can serve on the board, find one to read and prepare the NASDAQ or NYSE application. Doing so can help reduce comments, increase response times, and speed the up-listing along.
It’s ultimately up to each company to decide which national exchange is the best fit for its business. Although it can be a difficult decision, understanding the differences between the two exchanges, as well as the requirements for listing on each, can help companies make the right choice. For instance, NASDAQ is known for its online trading capabilities, which can be beneficial for companies with a more tech-savvy customer base. Many of the world’s leading tech giants, including Google and Apple, are listed on the NASDAQ, showing its potential as an ideal platform for tech companies. On the other hand, the NYSE is known to be more stable and is the oldest and largest of the national exchanges. Companies that are more established and have a more traditional customer base may find the NYSE to be more suitable for their needs such as Berkshire Hathaway Inc. Investors also view companies on the NYSE as trusted and less volatile than those on the NASDAQ.
For some, it is tempting to up-list without paying for any consulting services. While such an approach is not destined inherently to end in failure, it is likely to be resource-intensive. It is true that listing requirements are publicly available from both NASDAQ and NYSE. However, the road to transition can be nuanced, and potholed. While many can successfully up-list without seeking help, the process can be expensive and lengthy. Such inefficiency can create undo strain in the first listed year when exchange fees can exceed $50,000. In many cases, if not most, it is advisable to pay for an experienced consultant to oversee the process.
Ultimately, up-listing from an OTC exchange to a national one can provide numerous benefits, but it is important to do adequate research and planning prior to making the move in order to maximize these benefits. Companies should be sure they fulfill all requirements and consider further consultation or assistance if needed. Doing so can save time and money while ensuring a successful transition.
Additionally, it is important to understand the requirements laid out by the exchanges for their companies. Some business owners dream of being traded on NASDAQ or NYSE and put too little thought into post-listing existence. They are then underprepared to meet reporting, meeting, and communication requirements. Those who are truly prepared to up-list have probably prepared extensively for items of corporate governance. They understand, to a tee, what is required at board meetings and annual shareholder meetings. They also understand how to meet those requirements while continuing operations successfully. Companies that fail to impress during their first year on national exchanges can lose reputation and shareholder trust.
If you represent a publicly-traded company, and you are thinking about up-listing, Colonial Stock Transfer can assist. We offer comprehensive consultation and complete transfer agent services.
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