Just a reminder on the why and how of moving to NASDAQ Move From OTC to a Major Exchange
By KEN CLARK Updated Jul 14, 2019
Over-the-counter markets can be used to trade stocks, bonds, currencies, and commodities. This is a decentralized market that has, unlike a standard exchange, no physical location. That's why it's also referred to as off-exchange trading. There are many reasons why a company may trade OTC, but it's not an option that provides much exposure or even a lot of liquidity. Trading on an exchange, though, does. But is there a way for companies to move from one to the other?
Read on to find out more about the difference between these two markets, and how companies can move from being traded over-the-counter to a standard exchange.
KEY TAKEAWAYS
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Over-the-counter securities are not listed on an exchange, but trade through a broker-dealer network.
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Companies can jump from the OTC market to a standard exchange as long as they meet listing and regulatory requirements, which vary by exchange.
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Exchanges must approve a company's application to list, which should be accompanied by financial statements.
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Some companies choose to move to get the visibility and liquidity provided by a stock exchange.
OTC vs. Major Exchange: An Overview
Over-the-counter (OTC) securities are those that are not listed on an exchange like the New York Stock Exchange (NYSE) or Nasdaq. Instead of trading on a centralized network, these stocks trade through a broker-dealer network. Securities trade OTC is because they don't meet the financial or listing requirements to list on a market exchange. They are also low-priced and are thinly traded.
OTC securities trading takes place in a few different ways. Traders can place buy and sell orders through the Over-the-Counter Bulletin Board (OTCBB), an electronic service offered by the Financial Industry Regulatory Authority (FINRA). There is also the OTC Markets Group—the largest operator of over-the-counter trading—which has eclipsed the OTCBB. Pink Sheets is another listing service for OTC penny stocks that normally trade below $5 per share.
Securities listed on major stock exchanges, on the other hand, are highly traded and priced higher than those that trade OTC. Being able to list and trade on an exchange gives companies exposure and visibility in the market. In order to list, they must meet financial and listing requirements, which vary by exchange. For instance, many exchanges require companies to have a minimum number of publicly-held shares held at a specific value. They also require companies to file financial disclosures and other paperwork before they can begin listing.
Mechanics of Moving
It isn't impossible for a company that trades OTC to make the leap to a major exchange. But, as noted above, there are several steps it must take before they can list.
Companies looking to move from the over-the-counter market to a standard exchange must meet certain financial and regulatory requirements.
The company and its stock must meet listing requirements for its price per share, total value, corporate profits, daily or monthly trading volume, revenues, and SEC reporting requirements. For example, the NYSE requires newly listed companies to have 1.1 million publicly held shares held by a minimum of 2,200 shareholders with a collective market value of at least $100 million. Companies that want to list on the Nasdaq, on the other hand, are required to have 1.25 million public shares held by at least 550 shareholders with a collective market value of $45 million.