Listing Requirements: Minimal Tests for a Company's Stock to be Listed on a Stock Exchange

August 25, 2024 3 min read Finance Stock Markets Investments Stock Exchange Listing Requirements NYSE Finance Investments

Comprehensive overview of the minimal tests a company must meet for its stock to be listed on various stock exchanges, with a focus on the New York Stock Exchange (NYSE) which has the most rigorous requirements.

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To have its stock listed, a company must meet specific minimal tests set by stock exchanges, which include financial and non-financial criteria. These requirements ensure the company is financially stable and compliant with regulatory standards, thereby protecting investors.

Financial Criteria

Earnings and Profitability

NYSE: A company must have earned pre-tax income of at least $2 million in the most recent fiscal year and have aggregate pre-tax income for the last three years of at least $10 million.
NASDAQ: A company must have a minimum of $11 million in pre-tax earnings over the last three years, with at least $2.2 million in the two most recent years and no losses in the three-year period.

Market Capitalization

NYSE: The company must have a global market capitalization of at least $200 million if it does not meet the earnings test.
NASDAQ: Requires a market capitalization of at least $75 million OR $110 million, depending on the segment (NASDAQ Global Market or NASDAQ Global Select Market).

NYSE and NASDAQ: A minimum share price of $4 before listing is crucial for acceptance and continued listing.

Non-Financial Criteria

Public Float

NYSE: Requires at least 1.1 million publicly traded shares worth at least $100 million.
NASDAQ: Needs at least 1.25 million publicly traded shares with a market value of $45 million.

Shareholders

NYSE: At least 400 stockholders holding 100 shares or more.
NASDAQ: Requires at least 300 round-lot shareholders.

Corporate Governance

Corporate governance standards are another crucial criterion that includes:

Board Requirements: A majority of independent directors.
Audit Committees: Establishment of an Audit Committee consisting solely of independent directors.
Code of Conduct: Adoption and disclosure of a code of conduct for directors, officers, and employees.

Compliance Documentation

Companies must submit various documents, including:

Registration Statement: Filed with the SEC using Form S-1, S-3, or F-1.
Financial Statements: Audited and compliant with U.S. GAAP or IFRS.

Historical Context

The NYSE, founded in 1792, has progressively increased its listing standards to uphold its reputation as a premier global financial institution. Over decades, these criteria have become benchmarks that other exchanges strive to match or tailor according to their regional contexts.

FAQs

What happens if a company does not meet NYSE listing standards after listing?

Companies not meeting listing standards could face suspension or delisting. However, the NYSE often provides a grace period to regain compliance before taking action.

Can a smaller company list on the NYSE?

Yes, if it meets the alternative standards, such as market capitalization and revenue tests, instead of the primary earnings criteria.

Summary

Listing a company’s stock on a major exchange like NYSE or NASDAQ involves rigorous financial and non-financial criteria to ensure investor protection and market integrity. NYSE has the most stringent requirements, focusing on earnings, market capitalization, float, and corporate governance standards.

For further reading, refer to the official NYSE Listing Manual and NASDAQ Listing Requirements documentation.

This comprehensive guide provides an in-depth look at the steps and standards a company must meet to have its stock listed, giving potential investors and businesses clear insights into the rigorous process.