Going Public? How to Choose Which Exchange to List On

Considering taking your company public? When you get through all of the paperwork you’ll need to decide where stock exchange that you need to list your organization. Each publicly traded company may trade stocks on just one domestic stock market. Substantive differences exist among the trades and the subsequent discussion should help you make a choice.

The principal use of a stock market is to provide liquidity; it’s a mechanism to get and sell shares. Stocks become available on a market after a business completes its initial public offering (IPO). In an IPO, a company sells shares to a first set of public shareholders that represent the main industry. Following the IPO”floats” stocks into the hands of public shareholders, these stocks can be sold and bought on a stock market, the secondary sector.

The bigger the exchange, the larger the secondary action, so 1 criterion to consider is the size. Exchanges have their own standards and lots of companies can’t meet them. Less discerning market exchanges provide for those businesses that can’t meet stricter requirements.

American Stock Exchange (Amex)

As with other companies, stock exchanges can be bought, sold, and merged. The American Stock Exchange (Amex), when the third largest in the U.S., was purchased by NYSE Euronext in 2008 and re-branded as the NYSE Amex Equities. It’s a subsidiary of the New York Stock Exchange.

London Stock Exchange (LSE)

The LSE was created over 300 years back. It records about 2,900 companies from 70 nations. Many big U.S. companies listed on American exchanges also list on the LSE.
The LSE is much smaller compared to American exchanges using an average daily trading volume of approximately 250,000 shares.

The New York Stock Exchange (NYSE)

 

The New York Stock Exchange.

 

Established in 1792, this is the oldest and most prestigious stock exchange in the U.S. Unlike a number of other exchanges, it preserves a trading floor. In 2007 it united with Euronext. About 2,800 businesses are listed on the NYSE. Including Amex and Euronext, it’s 8,000 listings. The NYSE has strict criteria. To be listed a company should have more than 2,200 shareholders and an average daily trading volume of 100,000 shares. Generally, the business must have a complete capitalization of at least $750 million or pre-tax earnings of over $10 million.

NASDAQ

 

The NASDAQ Stock Exchange.

 

Also based in New York , the NASDAQ — originally an acronym for National Association of Securities Dealers Automated Quotations) — was established in 1971. Unlike the NYSE, the NASDAQ isn’t a physical exchange. Rather it’s wholly digital, nothing more than a network of computers. It now has over 3,200 listed companies, and has surpassed the NYSE in terms of daily traded stocks. Generally, a business must have issued about 1,000,000 shares of stock valued at $10 million or more to join the NASDAQ.

The NASDAQ is known as the most technologically complex stock market in the world and consequently has become the listing choice of most tech firms. Microsoft chose the NASDAQ as it went public in 1986 and the market now hosts many media, communication, financial institutions, and biotechnology businesses. Google and Apple trade on NASDAQ and Facebook has declared its intention to do the same when it goes public. However, the NYSE did secure Pandora and LinkedIn, two fast growing technology companies.

While NASDAQ has ever been publicly traded, the NYSE was a personal not-for-profit thing until 2006. Both exchanges are now companies trying to make a profit for their shareholders and they both trade their own stocks.

Differences Between the NYSE and NASDAQ

Even if your business qualifies to list on the NYSE, the costs can be prohibitive. A business can expect to pay an entrance fee up to $250,000, while on the NASDAQ the fee is between $50,000 and $75,000. Annual listing fees also exist. The NYSE computes them on the amount of shares of a listed security but they’re capped at $500,000. The NASDAQ yearly fees are approximately $27,500. Therefore, companies with less initial capital gravitate to the NASDAQ.

The floor of the NYSE operates on a system of controlled chaos, with crowds of people crying out calls in precisely the exact same time. By comparison, the NASDAQ’s computer system is a very efficient trading model. NASDAQ stocks are thought of as more volatile and insecure but can attain a whole lot of growth quickly. The companies on NYSE are older, more stable companies. Its listings include lots of the blue chip companies and industrials which have existed for over 60 years.

Securities on both exchanges are bought and sold through quite different practices. The NASDAQ is a trader’s market. Buyers and sellers aren’t negotiating with one another directly but via a dealer who’s a”market maker.” This is a broker-dealer firm that accepts the risk of holding a particular number of shares of a specific stock to be able to facilitate trading. Market makers compete for customer orders by displaying buy and sell quotations for a guaranteed number of shares. After an order is received, the market maker immediately sells from its own stock. There are more than 500 member firms that act as NASDAQ market makers.

By comparison, the NYSE is an auction market. According to Investopedia — an online educational resource for investors — an auction market is,”A market in which buyers enter competitive bids and sellers enter competitive offers at exactly the exact same time. The price at which a stock is traded represents the maximum price that a buyer is prepared to pay and the lowest price a seller is willing to sell at. Matching offers and bids are then paired together and the orders are implemented.” The NYSE has pros who match buyers and sellers. Whereas a market maker makes a market for a security, a professional only facilitates trades.

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Over-the Counter (OTC)

 

The Over-the-Counter Bulletin Board.

 

OTC companies cater to smaller public companies. Those businesses who are”de-listed” in the significant exchanges for failing to satisfy the requirements for many consecutive quarters usually visit one of both OTC exchanges.

Over-the-Counter Bulletin Board is an electronic community of market makers. Businesses that are delisted from the NASDAQ frequently go here since there are no minimum yearly earnings or assets required.

Businesses with fewer than 300 shareholders can record on Pink Sheets, which is a daily listing of bid and ask prices of over-the-counter stocks. Businesses that appear on Pink Sheets aren’t required to register with the SEC or to submit quarterly financial statements.

The Takeaway

Ecommerce firms with rapid growth and the expectation of greater than 300 shareholders would likely feel comfortable on the NASDAQ exchange. Businesses with fewer than 300 shareholders, and the ones who don’t fulfill the needs of NYSE or NASDAQ, can find a house on the OTC exchanges.