Listing Requirements
Candlefocus EditorLiquidity is a major factor used in determining whether a company’s shares can be listed. Exchanges typically require listed securities to have a substantial public or institutional ownership base and for the shares to be frequently traded. Generally, the required minimum number of shareholders is 500, although this can vary depending on the exchange and marketplace.
In addition to a liquid market, exchanges also require companies to meet certain financial qualifications. The exchange will review the company’s financial statements including balance sheet, income statement, and cash flows. The company must demonstrate that it has the financial capability to sustain operations moving forward. Exchanges often set a minimum stockholders’ equity and a minimum total enterprise value to list a company’s shares. This is yet another measure of ensuring investor protection by ensuring that the stock is not overvalued.
Many exchanges also require companies to have a minimum share price to list on their exchange. The share price is used to ensure that the stock is liquid and has attracted sufficient investors.
Companies must also agree to comply with different listing standards depending on the exchange and the market in which the stock is being traded. The listing standards may include requirements related to the composition of the board, governance, diversity and other topics.
Finally, companies must pay listing fees for their securities to be traded on an exchange. The specific amount of the listing fee depends on the exchange and range from hundreds to millions of dollars. Additionally, the company must pay an annual listing fee to remain listed on the exchange.
Clearly, listing requirements serve to protect investors and maintain the integrity and reputation of the exchange. Companies hoping to list their shares must meet the exchange’s liquidity and financial requirements, as well as pay a listing fee. By meeting the listing requirements, companies demonstrate to investors that their stock is of a high quality and can be trusted.