Requirements to Go Public on the NASDAQ

by Leslie McClintock

The National Association of Securities Dealers Automated Quotations (NASDAQ) system, is an online stock market that facilitates the sale and purchase of securities in member and listed firms. Like other exchanges such as the New York Stock Exchange (NYSE), the NASDAQ requires certain minimum standards of companies that want to list their stocks on the exchange. Specifically, stocks on the NASDAQ must possess specific requirements regarding capitalization, liquidity and corporate governance to qualify for listing.

Financial Requirements

The NASDAQ has four broad categories of financial requirements that they use to assess prospective listings. Companies can demonstrate at least $11 million in earnings over the past ten years, with three consecutive years of profitability; cash flows of at least $27 million over the past five years with positive cash flows in each of the last three years; Revenue of at least $90 million; or, for firms with little or no track record of profitability or positive cash flows, shareholders equity of $55 million and assets of $80 million or more. The minimum bid price for all new listees is $4 per share.

Liquidity Requirements

Companies that want to list on the NASDAQ must show that they have or can create a market so that shares can be regularly bought and sold. This means there must be a ready market of counterparties for listed securities on both sides of a transaction. Companies must float at least 1,250,000 shares for public trading, with a market value of at least $45 million for new issues, or $110 million for companies already being publicly traded.

Closed End Funds

Closed-end funds are a variety of mutual fund that trades a fixed number of shares over the stock exchange. Shareholders generally don't buy or sell shares directly from the fund, but from other shareholders over the stock exchanges, just as they would any other security. Closed end fund managers that want to list on the NASDAQ should be able to float 1,250,000 shares and have at least 2,500 total small investors, or 450 "round lot" investors - that is, investors who own more than 100 shares. The minimum capitalization of fund shares should be $30 million for funds traded by fund families, but separate funds should have market capitalizations of $70 million.

Fees

The NASDAQ charges a $25,000 nonrefundable application fee from companies that want to list their shares on the exchange. The remainder of the fee structure is based on a sliding scale, which in turn is based on the total number of shares the company desires to float on the exchange. Entry fees range from $125,000 to $225,000, depending on the number of shares. Annual fees range from $35,000 to $99,500.

Corporate Governance

Stocks considered for listing on the NASDAQ must also comply with minimum standards for corporate governance, including an independent board of directors, regular shareholder meetings, and independently audited financial statements.

Other Securities

The above requirements refer to corporations and closed end funds that want to trade directly on the NASDAQ only. The NASDAQ has other listing categories for American Depositary Receipts and other types of securities which are available from NASDAQ itself.

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