Understanding Nasdaq Listing Requirements 

With 3,611 international and domestic companies, Nasdaq has a higher trade volume than any other stock exchange in the U.S. These 3,000+ companies had to go through a rigorous process of fulfilling Nasdaq's listing requirements to be listed on the exchange. 

Nasdaq applicants have to fulfill certain corporate governance, liquidity and financial requirements to be listed. These requirements are designed to maintain the quality of companies on the exchange and to protect investors. Here's an overview of Nasdaq listing requirements and why they matter.  

What is Nasdaq?

Nasdaq, or the National Association of Securities Dealers Automated Quotations, is an electronic marketplace where investors from across the globe can buy and sell securities. The exchange officially opened for operations in 1971. 

Since then, it has expanded to incorporate 29 markets. Some of the largest enterprises, including Amazon, Apple, Alphabet, NVIDIA, Comcast and Airbnb, are listed on the Nasdaq. 

Nasdaq's primary function is to facilitate trading in securities – primarily stocks. It lists companies from various industries, including technology, finance, consumer goods, healthcare and telecommunications. 

Understanding Nasdaq Listings

Different stock exchanges, such as the New York Stock Exchange (NYSE) and Nasdaq, have different listing requirements. Listing is the process of a company selling shares and becoming publicly traded by having its stock listed on a stock exchange. Investors can buy and sell listed shares.

Being the platform for these investments, Nasdaq has stringent criteria for investment protection. These listing rules apply to all companies that want to list on the exchange. The Nasdaq has three tiers. These are:

•  Nasdaq Global Select Market: The strictest of the Nasdaq tiers attracts companies of international standing. Among the criteria, shares must trade for at least $4 per share. In addition, companies must have a minimum of 1,250,000 publicly traded shares
•  Nasdaq Global Market: Companies must have at least 1,100,000 shares that trade at $4 or more.
•  Nasdaq Capital Market: At least 1,000,000 public shares are required at a $4 minimum.

Nasdaq Listing Requirements

Nasdaq has listing standards for both new and currently listed companies. The latter has to follow the ''continued listing'' requirements, while the former must comply with the initial listing standards. 

Financial Requirements

Nasdaq requires applicants to meet at least one of its four specified financial standards:

Earnings 

The applicant should have an aggregate pre-tax earning of more than or equal to $11 million in the past three fiscal years, with no net loss in this duration. The pre-tax earnings of the two most recent fiscal years should be more than or equal to $2.2 million each. 

Capitalization with Cash Flow 

The applicant should have an aggregate cash flow of more than or equal to $27.5 million in the past three fiscal years. The net loss in this duration should be $0 or less. 

The applicant's market capitalization in the past 12 months should average $550 million or more, and the revenue in the past fiscal year should be greater than or equal to $110 million. 

Capitalization with Revenue

Standard 3 requires the application to have an average market capitalization of $850 million or higher over the past 12 months, whereas the revenue for the previous fiscal year should be more than or equal to $90 million. 

Assets With Equity 

There are no cash flow or pre-tax earnings requirements for this standard. The application's total assets should be worth at least $80 million, while their stakeholders' equity should equal $55 million. It should also have a market capitalization of $160 million. 

Corporate Governance

All applicants must also comply with the corporate governance rules the U.S. Securities and Exchange Commission (SEC) has set. These include sections 4350, 4351 and 4360. 

The aforementioned sections mandate the following: 

• Distribution of interim and annual reports to shareholders through email or postal mail 
• Establishment of a board with independent directors 
• Establishment of an audit committee with at least three members, all of which should be independent directors 
• Determination of compensation for executive officers and the chief executive officer by a compensation committee 
• Diversity in the board, with at least two diverse members, one being a self-identifying female and another member of the LGBTQ+ or an underrepresented community. Alternatively, an explanation must be provided for the lack of a diverse board.

Other requirements include voting rights, annual meetings, solicitation of proxies, quorum, shareholder approval for security issuance and a code of conduct.

Past Financial Performance

Besides the financial requirements, applicants must also have a track record of consistent and positive financial performance. To qualify under the Net Income Standard, an applicant must have a net income of $750,000 from continuing operations in the last fiscal year or two of the past three fiscal years. 

Under the Income Standard, an applicant must have an income worth $1 million from continuing operations before taxes in the last fiscal year or two of the past three fiscal years.

Continued Listing

Once listed, a company has to meet one of the three standards. 

Equity Standard 

Per this standard, the company must have: 

• Stockholders' equity of $10 million
• 750,000 publicly held shares 
• $5 million worth of market value of publicly held shares 
• Bid price of at least $1 
• 400 total shareholders 
• 2 market makers 

Market Value Standard 

To quality under this standard, the company should have: 

• $50 million in market value of listed securities 
• 1.1 million publicly held shares 
• $15 million worth of market value of publicly held shares 
• Bid price of at least $1 
• 400 total shareholders 
• 2 market makers 

Total Assets/Total Revenue Standard 

For this standard, the company must have: 

• Total assets and total revenue of $50 million and $50 million, respectively, in the last fiscal year or two of the past three fiscal years 
• 1.1 million publicly held shares 
• $15 million worth of market value of publicly held shares 
• Bid price of at least $1 
• 400 total shareholders 
• 2 market makers

Benefits of Nasdaq Listing

Listing on a stock exchange as prestigious and reputable as Nasdaq has numerous benefits for companies. 

• Enhanced liquidity: Nasdaq provides companies access to a large pool of investors.
• Improved market visibility: Companies that list on Nasdaq gain increased visibility and credibility in the market, which can attract investors and potential partners. 
• Potential mergers and acquisitions: Qualifying for a public listing opens doors for potential mergers or acquisitions. 
• Access to capital: Companies can issue their shares to investors to raise capital for expansion or other business ventures. 
• Collateral value of shares: Credit facilities accept Nasdaq-listed shares as collateral, allowing companies to enjoy favorable borrowing terms.

Case Studies

Here’s an example of two success stories on Nasdaq.

• Amazon.com, Inc.: Founded in 1994, Amazon went public on Nasdaq in 1997. The online bookstore has since become one of the world's largest e-commerce and technology companies.
• Tesla, Inc.: Electric vehicle manufacturer, Tesla, went public on Nasdaq in 2010. Today it is a leading company in the electric vehicle industry and a significant renewable energy player.

And a company that didn’t make it:

• Sears Holdings Corporation: Once a major retail chain, Sears faced financial trouble and was delisted from Nasdaq in 2018. The company filed for bankruptcy and has downsized and restructured.

Nasdaq Attracts Growing Companies

Nasdaq requires stringent adherence to reporting and governance conditions. It also forces listed businesses to maintain operational and financial good health. For companies, a Nasdaq listing represents the opportunity to access capital and grow the business. On the investment side, Nasdaq shares give investors the chance to invest in high-growth companies.

Complying with one of four standards qualifies a company for listing on Nasdaq. A company can also list on multiple exchanges. After joining, companies have to follow the rules and regulations set by each exchange. Failure to comply with these rules may result in delisting or suspension. 

Frequently Asked Questions