Management teams of OTC issuers often speak about “up-listing” to senior exchanges. Joining the NYSE Mkt (f/k/a: AMEX) or NASDAQ have a number of benefits that result in generally increased valuations and liquidity. Increased liquidity and valuation is a result of analyst coverage, the opportunity to be included on indexes (like the Russell Microcap Index), greater access to capital, a more valuable acquisition currency, and higher listing standards.
One of the biggest differences between OTC issuers and NASDAQ/NYSE Mkt listed issuers is that listed issuers must meet a higher standard. Both NYSE Mkt & NASDAQ listing requirements require that issuers meet certain financial, liquidity, and corporate governance standards. If qualified, most micro-caps will up-list to either the NYSE Mkt or the NASDAQ Capital Market (the easiest of three NASDAQ tiers to qualify for). Both the NYSE Mkt and NASDAQ Capital Market have very similar listing requirements and some requirements are easier to meet than others.
Both exchanges require a minimum share price, number of shareholders, minimum number of shares in the public float, independent directors, audit committees, annual meetings, increased shareholder rights, and more. Most of these requirements can be met with some work and the help of the right advisers, attorneys, and accountants.
The more difficult NYSE Mkt & NASDAQ listing requirements for OTC issuers to meet are usually financial. To qualify for the NASDAQ Capital Market, an issuer must have a minimum stockholder’s equity of $4,000,000. To list on the NYSE Mkt, an issuer must have a minimum shareholder’s equity of $4,000,000 or have a minimum $75,000,000 market cap, or have over $75,000,000 in assets AND $75,000,000 revenues.
Most micro-caps don’t have $4,000,000 in shareholder’s equity and many even have negative shareholder’s equity. Shareholders equity (often referred to as book vale) is equal to total assets minus total liabilities. Creating shareholder’s equity is the goal (and challenge) of most businesses and micro-caps are no different. Micro-caps usually have two options to build a positive book value; (1) raise significant capital through equity financing or (2) complete an acquisition using substantial equity. To see how one OTC issuer did both, check out this free case study from Acquis Capital: “A Micro-Cap Success Story”. If an issuer can meet the minimal financial requirements the remainder of the up-listing process is just a matter of crossing the “t”s and dotting the “i”s.
So there you have it, build a financially strong business and you will meet NYSE Mkt or NASDAQ listing requirements! Once you up-list you will find it easier to raise capital on more favorable terms, build liquidity for your stock, increase your market valuation, and use your stock for acquisitions.
See the NYSE Mkt listing requirements HERE.
See the NASDAQ listing requirements HERE.
Ben Kotch is a managing director and investment committee member at Acquis Capital, LLC, a private investment firm that specializes in acquisition funding. He has extensive experience with both private and public companies. Ben graduated with an economics degree from Bentley University where he concentrated in entrepreneurship and law.
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