Written by Phineas Upham
The NASDAQ is a major stock exchange. As such, it relies on the reputability of the companies it trades in order to remain legitimate. NASDAQ companies tend to have a solid corporate background, and top-notch management.
NASDAQ maintains three basic rules for joining the exchange, and companies must meet at least one of them.
All companies must have a minimum of 1,250,000 shares that can be publicly traded. These public shares exclude those held by company executives, and the initial regular bid price must be set at $4. Under certain conditions, initial offerings can be as low as $2.
Each member of the exchange must also follow NASDAQ’s corporate governance rules, which includes an average trading volume of 1.1 million shares monthly.
Companies must also have aggregate pre-tax earnings from the past three years totaling at least $11 million. If the company has less than that amount, or has experienced a net loss in the past three years, it is inelligible.
Companies should also have a minimum cash flow of $27.5 million, with an average market capitalization that totals more than $550 million. However, the cash flow requirement is abandoned altogether if the company is able to amass $850 million or more in market capital.
Once the company is on NASDAQ, it must maintain these rigid standards to continue in the exchange. The most common reason for a company to lose its place on the exchange is typically a falling stock price, but a lack of market capitalization is also to blame in some instances.