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NASDAQ Capital Markets Listing Standards

The NASDAQ Stock Market currently has three tiers of listed companies: (1) The NASDAQ Global Select Market, (2) The NASDAQ Global Market and (3) The Nasdaq Capital Market. Each tier has increasingly higher listing standards, with the Nasdaq Global Select Market having the highest initial listing standards and the Nasdaq Capital Markets being the entry-level tier for most small-cap issuers.

A company seeking to list securities on NASDAQ must meet minimum listing requirements, including specified financial, liquidity and corporate governance criteria. NASDAQ has broad discretion over the listing process and may deny an application, even if the technical requirements are met if it believes such denial is necessary to protect investors and the public interest.

Once listed, a company must meet continued listing standards. To apply for listing on NASDAQ, a company must complete and submit to NASDAQ a listing application, including specified documents and information.

The application process generally takes six to eight weeks. Upon submittal of the application, a NASDAQ analyst will be assigned to the file as a lead interface with the company. The company will receive an initial comment letter within two to three weeks, and the comment and review process will continue until the application is approved or denied. Like filing with the SEC, a well-prepared NASDAQ application will result in fewer comments and a smoother process. Generally, a company’s securities counsel takes the lead and is the point person in preparing the application and communicating with NASDAQ.

Also similar to an SEC review process, NASDAQ will review publicly available information about a company, including but not limited to SEC filings, a company’s website, management communications and speeches, and press releases. For the most part, the back-and-forth process does not require a formal protocol, and communications will include e-mail correspondence and phone calls.

Listing Criteria For 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.

The following chart is copied from the NASDAQ website.

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. A jurisdiction that does not provide the PCAOB with access to conduct inspections of public accounting firms that audit NASDAQ-listed companies is a Restrictive Market. Currently the only Restrictive Markets are China and Hong Kong.

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 https://securities-law-blog.com/2021/09/07/sec-approves-nasdaq-board-diversity-rule/?hilite=%27nasdaq%27.

For a review of NASDAQ board independence standards, see – https://securities-law-blog.com/2019/12/03/nasdaq-board-independence-standards/?hilite=%27nasdaq%27.

For a review of the NYSE MKT board independence standards, see – https://securities-law-blog.com/2020/01/14/nyse-american-board-independence-standards/?hilite=%27independence%27%2C%27standards%27
 

 

 

 

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 – https://securities-law-blog.com/2019/12/17/drill-down-on-nasdaq-audit-committee-requirements/?hilite=%27nasdaq%27.

For a drill down on NYSE MKT audit committee requirements, see – https://securities-law-blog.com/2021/01/26/audit-committees-nyse-american/?hilite=%27audit%27%2C%27committee%27.
 

 

 

 

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.

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 http://securities-law-blog.com/2019/03/26/the-20-rule-acquisitions/.

·        Issuances resulting in a change of control (see http://securities-law-blog.com/2019/04/09/nasdaq-and-nyse-american-shareholder-approval-requirements-change-of-control/.

·        Equity compensation (see https://securities-law-blog.com/2019/05/07/nasdaq-and-nyse-american-shareholder-approval-requirement-equity-based-compensation/?hilite=%27nasdaq%27.

·        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 http://securities-law-blog.com/2018/12/18/nasdaq-amends-its-20-dilution-shareholder-approval-rule/.
 

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 – https://securities-law-blog.com/2019/08/13/nasdaq-and-nyse-mkt-voting-rights-rules/?hilite=%27nasdaq%27.

The NASDAQ Application and Documents

The NASDAQ application package includes the following:

  • A symbol reservation form
  • The listing application (which requires supplemental documents)
  • The listing agreement
  • The corporate governance certification
  • The initial application fee, payable via check or wire transfer
  • A logo submission form

All the application forms are completed online at the NASDAQ website listing center. The online platform allows for uploading supplemental and supporting documents. All papers should be reviewed in advance, and the requisite information should be readily available before applying.

NASDAQ Symbol Reservation Form

The symbol reservation form is a one-page fill-in electronic form. NASDAQ symbols must be 1-5 characters and are governed by the Intermarket Symbols Reservation Authority (ISRA), designed to help organize symbols, prevent duplication, and reduce programming and operational complexities. The symbol reservation form requests three symbol choices in order of preference. Although Nasdaq will likely give the first choice if available, it has full authority to assign, rescind, or reassign a trading symbol at any time.

An Overview Of The NASDAQ Application

NASDAQ has several listing applications depending on the circumstances of the listing sought. Twelve different listing applications vary from an application where there has been a change of control, to switching from another exchange or other U.S. market such as the OTC Markets, to spin-offs and of course an IPO. Each listing application is approximately seven pages long and requests detailed basic information about the company such as address, contact and billing information, securities attorney and auditor information, transfer agent, and officers and directors. In addition, the application form requests information on the specific securities, including type, par value, and cusip number.

A NASDAQ application also requires disclosure of particular inquiries, investigations, lawsuits, litigation, arbitrations, hearings, and other legal and administrative proceedings involving the company, its officers or directors, or ten percent (10%) or more significant shareholders. Related to the company, the application requires disclosure of any proceedings within the ten years preceding the application date (i) that were initiated by any regulatory civil or criminal agency; (ii) which are material to the company and were asserted under state or federal securities, banking, insurance, tax or bankruptcy laws; or (iii) which are material to the company and allege fraud, deceit or misrepresentation. Backup and final disposition documents must be provided.

Related to officers, directors, or ten percent (10%) or more significant shareholders, the application requires disclosure of any proceedings within the ten years preceding the application date (i) that were initiated by any regulatory civil or criminal agency; or (ii) which allege fraud, deceit or misrepresentation and requested damages over $100,000. Again, backup and final disposition documents must be provided.

Disclosure is required regarding any matters that fall within the category requested, including all inquiries, even where the inquiring party would not have jurisdiction to pursue a claim. Accordingly, investigations by FINRA’s Office of Fraud Detection and Market-related to the trading activity and press releases, although usually benign, must be disclosed.

The application includes additional questions related to the company’s background, including questions designed to ensure compliance with the seasoning rules.

Moreover, all private offerings, including bridge financings, shelf registrations, and Regulation S offerings, that “are contemplated or have been consummated within the prior six months” must be disclosed. A planned incomplete or busted offering may result in additional questions; accordingly, care should be given to launching private offerings before a planned listing or uplisting.

Although NASDAQ has the right to request any supporting documents it deems relevant, certain supporting documents must be included with the application. The types of supporting documents vary depending on the application type.

An application for an uplisting from an existing U.S. market, such as the OTC Markets, must include the following:

  • Letters from 3 market makers confirming their agreement to make a market in the subject securities upon acceptance of a NASDAQ listing
  • A listing agreement
  • A logo submission form
  • A corporate governance certification form
  • Regulatory correspondence over the past 12 months
  • Shareholder confirmation documents

Moreover, in an uplisting application, NASDAQ frequently requests written confirmation from the company’s transfer agent that the security is eligible for DRS (direct registration program).

Other common follow-up questions from NASDAQ when reviewing an uplisting application include:

  • A request for a Broadridge share range analysis and NOBO list.
  • A request for a certified shareholder list.
  • Questions related to the mitigation of any going concerns or opinions.
  • A request for income statement and/or balance sheet projections for the next 12 months.
  • Confirmation that all Sarbanes Oxley Section 302 and 906 certifications have been made.
  • Confirmation that the auditors have reviewed all quarterly filings by SAS 100.

We can help ensure you understand and complete everything you need to in your application. Speak with an attorney from ANTHONY, LINDER & CACOMANOLIS, PLLC, by calling 877-541-3263.

The Listing Agreement

The Listing Agreement is a simple 2-page agreement affirming the company’s agreement to comply with all rules and regulations of the NASDAQ Stock Market and indemnifying and holding NASDAQ harmless from liability. In particular, a listed company has NASDAQ harmless and agrees to indemnify the exchange from any harm resulting from third-party trademark infringement claims related to the company’s symbol and logo and NASDAQ’s use of the same. In addition, the listing agreement contains a disclaimer of warranty and liability against NASDAQ for trading issues other than those resulting from gross negligence or willful misconduct.

Corporate Governance Certification Form

The corporate governance certification form certifies compliance with the governance requirements related to an audit committee, director nomination process, compensation committee, board composition, executive sessions, quorum, and codes of conduct. Where an exemption applies, the form requires specification of the exemption terms. The document specifies the different rules and exceptions in a check-the-box format.

Logo Submission Form

The logo submission form contains the guidelines for the logo and affirms NASDAQ’s rights to use the same. NASDAQ uses company logos in its marketing materials, on the MarketSite Video Wall and Tower, and websites.

NASDAQ Entry Fees

Entry fees are based upon the aggregate number of shares to be listed at the time of initial listing, regardless of class, with a maximum cap of $75,000. Fees are assessed on the entry date in The NASDAQ Capital Market, except for $5,000, representing a non-refundable application fee. This fee must be submitted with the company’s application.

The listing fee is assessed as follows:

Up to 15 million$50,000, including a $5,000 application fee

Over 15 million$75,000, including a $5,000 application fee

NASDAQ does not charge application or entry fees for any securities transferred from a national securities exchange.

NASDAQ’s Annual Fees

Annual fees are based on the company’s Total Shares Outstanding (“TSO”) for all classes of stock listed on the Capital Market, as reported in the company’s latest filing on record with NASDAQ. In the first year of listing, the company’s annual fee will be prorated based on the listing date.

For a company transferring to the NASDAQ Capital Market from The NASDAQ Global Select Market or Global Market, NASDAQ will apply a credit toward the balance of the company’s new annual fee based on the yearly price already paid.

We Help You Meet And Maintain NASDAQ Compliance

It’s crucial for your business entity to meet the minimum NASDAQ compliance guidelines when listing it on this exchange. Learn more about how we can help you navigate the complex and bureaucratic nature of this process by speaking with one of our lawyers. Call 877-541-3263, or complete our online contact form to schedule an initial consultation today.