The exchanges and what it takes to get on them
Among the exchanges, Nasdaq has little competition for attracting trading in new public offerings. Close to 90% of the companies that went public in 1996 were Nasdaq National Market or SmallCap Market issues, including 193 of the 200 companies with revenues of $10 million or less. Of the three major exchanges, Nasdaq is also the youngest: though it began trading in 1971, it created the National Market in 1982 and the SmallCap in 1992. The New York Stock Exchange (NYSE) has been around since 1792.
Two of the companies with revenues of $10 million or less went public in 1996 through the over-the-counter (OTC) market, an informal system founded in 1913. Virtually the only requirement to be met by a company doing an OTC offering is that a market maker sponsor the listing. The basic requirements for doing an initial public offering on the other exchanges are listed below. (Once a stock is accepted for listing, the requirements to stay on an exchange are less stringent, to protect companies that have a short-term setback or experience a general market downturn.)
|REQUIREMENTS FOR INITIAL PUBLIC OFFERINGS|
| Nasdaq National
Market Alternative 1
| Nasdaq National
Market Alternative 2
| Nasdaq |
|Net tangible assets*||$40 million||--||--||$4 million||$12 million||$4 million|
|Stockholders' equity||--||$4 million||$4 million||--||--||$2 million|
|Net income||--||--||--||$400,000 a||--||--|
|Pretax income||$2.5 million b||$750,000 a||--||$750,000 a||--||--|
|Public float (shares)**||1.1 million||500,000 or 1 million c||500,000 or 1 million c||500,000||1 million||100,000|
| Market value of
|$40 million||$3 million||$15 million||$3 million||$15 million||$1 million|
|Operating history||--||--||3 years||--||3 years||--|
|Minimum bid price||--||$3||$3||$5||$3||$3|
|Shareholders||2,000 d||800 or 400||800 or 400 c||800 or 400 c||400||300|
*Net tangible assets are the total assets of a company, excluding liabilities and such intangibles as patents, trademarks, and goodwill. The figure for Nasdaq SmallCap Market is total assets.
**Public float is the total number of outstanding shares available on the market.
A. For the latest fiscal year or for two of the last three fiscal years.
B. Must have had $2.5 million in pretax income for the most recent fiscal year and $2 million in pretax income for each of two preceding years. Or, an aggregate of $6.5 million in the previous three fiscal years, with a minimum of $4.5 million in the most recent fiscal year. All three years must have been profitable. Or (for companies with not less than $500 million in market capitalization and $200 million in revenues in the most recent fiscal year) an aggregate adjusted net income of $25 million in the previous three fiscal years.
C. If the public float is from 500,000 to 1 million shares, then 800 shareholders are required. As few as 400 shareholders are allowed if the float is more than 1 million shares or if it is more than 500,000 shares with an average daily volume of more than 2,000 shares.
D. These are holders of round lots (100 shares); other options are 2,200 shareholders with an average monthly trading volume of 100,000 shares, or 500 shareholders with an average monthly trading volume of 1 million shares.
Note: -- indicates no requirement.
Stephen D. Solomon is an associate professor of journalism and mass communication at New York University.
AMERICAN STOCK EXCHANGE, 86 Trinity Pl., New York, NY 10006; 212-306-1150 77
NASDAQ, 1735 K St. NW, Washington, DC 20895; 202-496-2500 77
NEW YORK STOCK EXCHANGE, 11 Wall St., New York, NY 10005; 212-656-3000 77
OTC BULLETIN BOARD, Nasdaq, 1735 K St. NW, Washington, DC 20895; 202-496-2500 77
Special Report: The Hottest Small-Company IPOs
- The Secret World of IPOs - The new small companies in the public arena: the top aftermarket performers, the lawyers and underwriters they used, the hot industries. A guide to the action of the last year. By Robert A. Mamis.
- You Don't Know Me... - How Robert Kopstein took his company public--on his own. By Robert A. Mamis.
- So You Want to Go Public - What each of the exchanges demands from companies wanting to get on them. By Stephen D. Solomon.
- Follow the Money - A dollar-by-dollar look at the cost of one company's IPO: why $7.2 million raised is $6 million earned. By Stephen D. Solomon.
- Light Up. Go Public. Quit Your Day Job - The story behind Caribbean Cigar Co.'s public offering: "the cigar craze was getting huge," says the founder, and he needed money to keep up. By Jay Finegan.
- FYI: Navigating the IPO Market - Background on the writers of the IPO package. By George Gendron.