Listing Requirements for Capital Markets
The OTC Market
The OTC Markets Group, under the tier OTC Pink, has the easiest listing requirements. This tier, OTC Pink, is the most speculative and has the widest range of risk and reward. Many OTC Pink listings are companies that have been delisted by NYSE and Nasdaq. OTC Pink has corporate governance requirements but no minimum financial standard which opens the door for start-up companies and mining ventures.
The Nasdaq Exchange
Nasdaq Capital Markets tier
The Capital Market is the ideal tier for small companies. This tier requires relatively small levels of market capitalization. Formerly named the Small Cap tier, the listing requirements for these small companies are less stringent than for other Nasdaq markets that list larger companies with a significantly higher market capitalization.
Listing Requirements for Nasdaq Capital Markets
Companies must meet all of the criteria under at least one of the three standards below to qualify for the NASDAQ Capital Market.
Corporate Governance Requirements
The categories of corporate governance include (1) Distribution of Annual or Interim Reports, (2) Independent Directors, (3) Audit Committee, (4) Compensation Committee, (5) Nomination of Directors, (6) Code of Conduct, (7) Annual Meetings, (8) Solicitation of Proxies, (9) Quorum, (10) Conflict of Interest, (11) Shareholder Approval and (12) Voting Rights. Companies must meet the following corporate governance standards:
The company is required to have a compensation committee consisting solely of independent directors and having at least two members. In addition, Rule 5605(d)(2)(A) includes an additional independence test for compensation committee 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.
The OTC Markets Group
OTCQB Group Tier
The OTCQB Group is an excellent tier for small companies. This tier does not impose a direct balance sheet requirement. The requirement is that the company is required to have a significant public float that must exceed $2 million in market cap. This standard encourages small companies to list the shares on the OTCQB to get shareholder visibility and an opportunity to raise money from public investors.
Listing Requirements for OTCQB
- In the event that there is no prior public market and a 15c2-11 application has been submitted to FINRA by a market maker, OTC Markets can waive the bid requirement at its sole discretion;
- Have a freely traded Public Float of at least 10% of the total shares issued and outstanding of the class of security to be traded on OTCQB. A Company applying to OTCQB with a freely traded Public Float above 5% but below 10% of the total shares issued and outstanding, and a market value of Public Float of at least $2 million, or that has a separate class of securities traded on a national exchange, may apply in writing to OTC Markets Group for an exemption from this Section 1.1(5), which exemption may be granted by OTC Markets Group in its sole and absolute discretion.
- In the event that a Company is a seasoned public issuer that completed a reverse stock split within 6 months prior to applying to the OTCQB, the Company must have a post reverse split minimum bid price of $.01 at the close of business on each of the 5 consecutive trading days immediately before applying to the OTCQB;
- Either be subject to the reporting requirements of the Securities Exchange Act of 1934 and be current in such reporting obligations or, if an international issuer, be eligible to rely on the registration exemption found in Exchange Act Rule 12g-2(b) and be current and compliant in such requirements or be a bank current in its reporting obligations to its bank regulator;
- Be duly organized, validly existing and in good standing under the laws of each jurisdiction in which it is organized and does business;
- Maintain a current and accurate company profile on the OTC Markets website;
- Use an SEC registered transfer agent and authorize the transfer agent to provide information to OTC Markets about the Company securities, including but not limited to, shares authorized, shares issued and outstanding, and share issuance history; and
- Submit an OTCQB Annual Certification confirming the accuracy of the current company profile and providing information on officers, directors and controlling shareholders.
OTCQB Application Process
All companies are required to post their initial disclosure on the OTC Markets website and make an initial certification. The initial disclosure includes:
- Confirmation that the Company is current in its SEC reporting obligations and has filed all reports with the SEC, that all financial statements have been prepared in accordance with U.S. GAAP, and that the auditor opinion is not adverse, disclaimed or qualified;
- Verification that the Company profile is current, complete and accurate;
All companies will be required to file an initial and annual certification on the OTC Markets website, signed by the CEO and/or CFO, stating:
- The company’s reporting standing (i.e., whether SEC reporting, bank reporting or international reporting) and briefly describing the registration status of the company;
- If the Company is an International Company and relying on 12g3-2(b), that it is current in such obligations;
- That the company is current in its reporting obligations to its regulator and that such information is available either on EDGAR or the OTC Markets website;
All companies are required to post their initial disclosure on the OTC Markets website and make an initial certification. The initial disclosure includes:
- Confirmation that the Company is current in its SEC reporting obligations and has filed all reports with the SEC, that all financial statements have been prepared in accordance with U.S. GAAP, and that the auditor opinion is not adverse, disclaimed or qualified;
- Verification that the Company profile is current, complete and accurate;
All companies will be required to file an initial and annual certification on the OTC Markets website, signed by the CEO and/or CFO, stating:
- The company’s reporting standing (i.e., whether SEC reporting, bank reporting or international reporting) and briefly describing the registration status of the company;
- If the Company is an International Company and relying on 12g3-2(b), that it is current in such obligations;
- That the company is current in its reporting obligations to its regulator and that such information is available either on EDGAR or the OTC Markets website;
- States the law firm and/or attorneys that assist the company in preparing its annual report or 10-K;
- Confirms that the company profile on the OTC Markets website is current and complete;
- Identifies any third-party providers engaged by the Company, its officers, directors or controlling shareholders, during the prior fiscal year and up to the date of the certification, to provide investor relations services, public relations services, stock promotion services or related services;
- Confirms the total shares authorized, outstanding and in the public float as of that date; and
- Names and shareholdings of all officers and directors and shareholders that beneficially own 5% or more of the total outstanding shares, including beneficial ownership of entity shareholders.
An application to OTCQB can be delayed or denied at OTC Markets’ sole discretion if they determine that admission would be likely to impair the reputation or integrity of OTC Markets Group or be detrimental to the interests of investors.
OTCQB Ongoing Listing Requirements
- OTCQB companies will be required to remain current in their SEC reporting obligations.
- A foreign company that is not an SEC Reporting Company must remain current and fully compliant in its obligations under Exchange Act Rule 12g3-2(b), if applicable, and in any event shall, on an ongoing basis, post in English through the OTC Disclosure & News Service or an Integrated Newswire, the information required to be made publicly available pursuant to Exchange Act Rule 12g3-2(b).
- Banks must remain current in their banking reporting requirements;
- All OTC Markets posting and reports must be timely filed 45 days following the end of a quarter or 90 days following the end of the fiscal year for US issuers and as soon as practicable but no later than 6 months following the end of the fiscal year end or 60 days following the end of a quarter for International companies; where applicable, file a notice of late filing allowing for 5 extra days on a quarterly report and 15 extra days on an annual report;
- All OTCQB companies will be required to post annual certifications on the OTC Markets website;
- All companies are required to comply with all federal, state, and international securities laws and must cooperate with all securities regulatory agencies;
- Must pay the annual fee;
- All companies must respond to OTC Markets inquiries and requests;
- All companies must maintain an updated company profile on the OTC Markets website and must submit a Company Update Form at least once every six months;
- All Companies must file interim disclosures in the event the Company undergoes a reverse merger or change of control and make new updated certifications and disclosure related to the new business and control persons;
- All OTCQB companies must meet the minimum bid price of $.01 per share at the close of business of at least one of the previous thirty (30) consecutive calendar days; in the event that the price falls below $.01, the company will begin a grace period of 180 calendar days to maintain a closing bid price of $.01 for ten consecutive trading days;
- Use an SEC registered transfer agent and authorize the transfer agent to provide information to OTC Markets about the Company securities, including but not limited to, shares authorized, shares issued and outstanding, and share issuance history.
Officers and directors of the Company are responsible for compliance with the ongoing requirements and the content of all information.
Nasdaq Capital Markets Should Be The End Goal
The goal of a small company going public should be a Nasdaq listing on the Nasdaq Capital Markets tier. This tier attracts investors from all over the world looking for growth stage stocks. The daily volume in this tear is often greater than the blue chip stocks traded on other tiers or the NYSE. Many companies that could move to higher tiers choose to remain on Nasdaq Capital Markets because most of the stocks on this tier are from growth stage companies.
A listing on the OTCQB tier is a significant achievement. Trading on the OTCQB tier will establish the value of the company and provide liquidity for investors. The OTC market gives the company exposure to investors and provides management experience in dealing with investors, brokerage firms, and analysts.
While the benefits of an OTCQB we encourage companies to see the OTC listing as the time for the company to increase sales and earnings to achieve a Nasdaq listing on the National Capital Markets.