Adam Hayes, Ph.D., CFA, is a financial writer with 15+ years Wall Street experience as a derivatives trader. Besides his extensive derivative trading expertise, Adam is an expert in economics and behavioral finance. Adam received his master's in economics from The New School for Social Research and his Ph.D. from the University of Wisconsin-Madison in sociology. He is a CFA charterholder as well as holding FINRA Series 7, 55 & 63 licenses. He currently researches and teaches economic sociology and the social studies of finance at the Hebrew University in Jerusalem.
Updated August 15, 2024 Reviewed by Reviewed by JeFreda R. BrownDr. JeFreda R. Brown is a financial consultant, Certified Financial Education Instructor, and researcher who has assisted thousands of clients over a more than two-decade career. She is the CEO of Xaris Financial Enterprises and a course facilitator for Cornell University.
Listing requirements comprise the various criteria and minimum standards established by stock exchanges, such as the New York Stock Exchange (NYSE), that companies must meet to list their shares for trading.
A company will be allowed to list shares for trading only if it meets initial as well as ongoing requirements.
Companies that do not meet listing requirements on major exchanges may be able to offer their shares for trading over the counter (OTC).
Listing requirements are a set of conditions that a firm must meet before listing a security on one of the organized stock exchanges, such as the NYSE, the Nasdaq, the London Stock Exchange, or the Tokyo Stock Exchange.
The requirements typically include a certain size and market share of the security to be listed. The underlying financial viability of the issuing firm is also a criterion. Exchanges establish these standards as a means of maintaining their own integrity, reputation, and visibility.
When firms request listings, they have to prove to an exchange that they meet the listing requirements. The high visibility and liquidity that a listing supports are strong incentives for a company to meet listing requirements.
Once a security is listed, the issuing firm usually must maintain a set of related but less stringent trading requirements. Otherwise, the company faces delisting. While no legal penalty is involved, being delisted can mean huge consequences for a company because its stock won’t be traded on the exchange.
Firms can cross-list a security on more than one exchange, and often do. Listing requirements are not barriers to trading altogether, as firms are always free to trade securities over the counter. However, OTC trading does not provide anywhere near the liquidity, regulatory oversight, prestige, or visibility as trading on one of the major stock exchanges provides.
Nasdaq’s U.S. exchange had 3,767 companies listed as of January 2022. Canada’s TMX exchange and the New York Stock Exchange followed with 3,546 companies and 2,529 companies, respectively.
Listing requirements vary by exchange, but there are certain metrics that are almost always included. The two most important categories of requirements deal with the size of the firm (as defined by annual income or market capitalization) and the liquidity of the shares (a certain number of shares must already have been issued).
For example, the NYSE requires firms to already have 1.1 million publicly traded shares outstanding with a collective market value of at least $40 million ($100 million for worldwide trading).
The Nasdaq requires firms to already have 1.25 million publicly traded shares with a collective market value of $45 million. Both the NYSE and the Nasdaq require a minimum security listing price of $4 per share.
Usually, an initial listing fee as well as yearly listing fees are required. The annual fees can scale up depending on the number of shares being traded and can total hundreds of thousands of dollars. Nasdaq fees are considerably lower than those of the NYSE. This lower cost has made the Nasdaq a more popular choice of exchange for newer or smaller firms.
The Dow Jones Industrial Average (DJIA) doesn’t have many rules for how a stock gets added to the index. The few requirements include that:
Yes. If companies fail to pay annual fees or can no longer meet the financial and liquidity requirements of an exchange, they can be delisted. Also, if share prices drop below a certain minimum, a company can be delisted. Once delisted from a particular exchange, investors won’t be able to trade a company’s stock on that exchange.
Nasdaq has three different tiers of listings: Nasdaq Global Select Market, Nasdaq Global Market, and Nasdaq Capital Market. Each tier has its specific listing requirements. In the instance of an initial public offering (IPO), all companies must have 1.25 million shares outstanding and 2,200 total shareholders (or 450 shareholders with 100 shares each). The market value of unrestricted publicly held shares (or publicly held shares and shareholder equity) must be at least $45 million. Companies must meet one of four possible financial standards as well. These involve earnings, cash flow and capitalization, capitalization and revenue, or assets and equity.
By market capitalization, the largest stock exchanges are the New York Stock Exchange and the Nasdaq. Both are located in New York. As of March 2024, the combined value of shares listed on both exchanges reached over $53 trillion.