Role of an Exchange: Inside the Listings Process that Strives to Protect Investors
Today, more than 3200 companies are listed on the Nasdaq exchange. Every year, hundreds of companies turn to the public markets to raise capital to fund future growth, reward early investors and achieve broader name recognition and deeper awareness of its services and products. But have you ever wondered how a company becomes a listed company?
As a stock exchange operator, Nasdaq plays a critical role in not only facilitating the listing of securities but also protecting investors by ensuring that companies entering the public markets meet specific standards. In order to be listed on an exchange, companies must satisfy certain financial, liquidity and corporate governance requirements.
Once a company applies to list its shares, Nasdaq’s Listing Qualifications group reviews the listing application to make a listing determination. During the review stage, the company’s filings and application materials are reviewed to ensure that the company meets minimum quantitative and qualitative criteria for listing. The review process also includes running regulatory checks on individuals and entities associated with the companies to avoid listing companies with a regulatory history that might result in harm to investors.
If approved, the company is allowed to list and trade on Nasdaq. Companies typically list on Nasdaq through an initial public offering (IPO), a direct listing, an upgrade from other markets or via a switch from another exchange.
In a traditional IPO, a company generally seeks to raise capital from investors and lists its securities in connection with the offering. For a direct listing, a private company lists on an exchange without concurrently raising capital from public investors.
Meanwhile, a Special Purpose Acquisition Company (SPAC), which is also known as a blank check company, is a company that does not have operations, and its sole business plan is to complete an IPO and engage in a merger or acquisition with one or more target companies within a specific period of time. The SPAC has a maximum of 36 months (or shorter if specified in the company’s registration statement) from the effectiveness of its IPO registration statement to complete the merger or acquisition.
The Nasdaq team also evaluates applications to list an existing public company that trades on another exchange or trading platform and wants to list on Nasdaq.
Even after a company lists on Nasdaq, the Listing Qualifications group continues to monitor companies, ensuring that they continue to comply with the listing standards. The team analyzes listed companies’ filings with the U.S. Securities and Exchange Commission (SEC), even leveraging artificial intelligence to do so more efficiently. For certain transactions, the group also reviews company transactions for compliance with the corporate governance, shareholder approval and voting rights. Nasdaq also has its own investigations group that works with other regulatory authorities, including the SEC as well as FINRA, to help safeguard investors.
While Nasdaq encourages investors to always perform their own due diligence, we constantly strive to help protect investors, from the time companies initially list and throughout their existence of trading on Nasdaq.
Nasdaq, Inc. intends for this website to serve basic educational purposes only. Information contained herein should not be construed as investment advice, either on behalf of a particular security or as an overall investment strategy. Neither Nasdaq nor any of its affiliates makes any recommendation to buy or sell any security or any representation about the financial condition of any company. Actual results may differ materially from those expressed or implied. Past performance is not indicative of future results. Nasdaq does not represent or warrant that any Investors should undertake their own due diligence and carefully evaluate companies and applicable laws before investing. ADVICE FROM A SECURITIES PROFESSIONAL IS STRONGLY ADVISED.