Three tiers and several tests
Nasdaq has three market tiers, the Global Select Market, the Global Market, and the Capital Market, each with its own initial listing standards. A company generally qualifies under one of several alternative financial standards built on measures such as earnings, equity, market value, revenue, or cash flow, and must also meet liquidity requirements covering the number of holders, publicly held shares, and a minimum bid price. Nasdaq has tightened several of these standards through a series of rule changes, including a rule that for many IPOs the required market value of unrestricted publicly held shares be met through the offering proceeds, and further changes aimed at smaller and China-based companies have been adopted or remain under SEC review. Because thresholds and the approval status of proposals change, the current rulebook and recent SEC approvals should be checked at the time of application. Nasdaq also keeps discretion to deny listing even when the numerical tests are met.
Governance rules that apply on listing
Listed companies generally need a board with a majority of independent directors, an audit committee of independent directors who also meet SEC independence standards, and a compensation committee, along with a code of conduct and a clawback policy for erroneously awarded incentive pay. Companies listing in an IPO usually have phase-in periods for some of these requirements, and controlled companies and foreign private issuers may rely on certain exemptions or home-country practice, within limits. Shareholder approval rules apply to some equity issuances and equity compensation plans. Recruiting qualified independent directors often takes longer than companies expect, so the search should start early.
Staying listed and planning the application
Continued listing standards are less demanding than initial ones but are enforced, and a bid price that stays below the minimum, a drop in equity, or a late periodic report can lead to a deficiency notice. Nasdaq has also limited how companies can cure bid price problems through repeated reverse splits and tightened the timeline for companies that remain out of compliance, so a notice should be addressed promptly. In planning an application, we review which tier and standard fit the company's numbers, the governance changes required, and how the listing interacts with the registration statement and underwriter timetable. For companies moving up from the over-the-counter market, we look at the existing shareholder base, past issuances, and filing history, which Nasdaq reviews closely.
