Definition of the Nasdaq capital market

What is the Nasdaq capital market?

The Nasdaq Capital Market is one of the tiers of the Nasdaq US market that contains early-stage companies that have relatively lower market capitalizations. The listing requirements for companies on the Nasdaq capital market are less stringent than for the other two tiers of the Nasdaq market, which focus on larger companies with higher market capitalization.

Key takeaways

  • The Nasdaq Capital Market (Nasdaq-CM) is one of three levels of trading on the Nasdaq exchange, specifically for companies that need to raise capital.
  • The companies listed here can be small companies with a need to increase capital or shell companies designed to raise capital in public markets in order to acquire other business entities.
  • Companies that do not qualify for the Nasdaq domestic market are listed on Nasdaq-CM.
  • Nasdaq capital market companies must meet a net income standard of at least $ 750,000, a minimum public float of 1,000,000 shares, at least 300 shareholders, and a share offering price of at least $ 4 (with certain exceptions ).

Understanding the Nasdaq Capital Market

The Nasdaq Capital Market, known until 2005 as the Nasdaq SmallCap Market, primarily lists so-called small-cap stocks (typically those with market capitalizations of around $ 300 million to $ 2 billion). The name change reflected a shift in focus to publicly traded companies that need to raise capital. It is intended to be a less taxed entry for a smaller company or Special Purpose Acquisition Company (SPAC) to capitalize and grow through a listing on Nasdaq.

Although the initial listing requirements are relaxed, the corporate governance required to maintain a listing on Nasdaq is the same at all levels. This means that Nasdaq capital markets companies must have a code of conduct, an audit committee, independent directors, etc.

Listing requirements for the Nasdaq capital market

The Nasdaq capital market makes it easy for early-stage companies to list, especially compared to other senior exchanges with more burdensome requirements. To initially list on the Nasdaq Capital Market, companies must meet all the criteria of at least one of three listing standards: the Stock Standard, the Market Value of Listed Securities, or the Total Assets / Income Standard. totals.

All the standards share some requirements, such as one million public shares, 300 shareholders, and three market makers (MM). However, these also differ in important ways. The equity standard requires a stockholders’ equity of $ 5 million, while the other two require only $ 4 million; and it also requires a two-year operating history, while the other two do not require an operating history. The market value of standard listed securities requires a market value of the listed securities of $ 50 million and a market value of the listed shares of $ 15 million. The net income standard is the only one that requires a net income of $ 750,000 in the last fiscal year or two of the last three years, but has the lowest requirement for the market value of public shares at $ 5 million.

Although companies can choose the standard that best suits their situation, the listing standards and required governance are more stringent than some early-stage capital markets. Due to the costs of meeting these standards, companies listed on the Nasdaq capital markets often easily exceed the minimum requirements before deciding to go public. Other early-stage capital markets, such as the alternative investment market, or AIM, have positioned themselves as lighter regulatory destinations to provide bridging quotes for companies as they grow enough for the Nasdaq.

Nasdaq trading levels

The Nasdaq exchange has three tiers for publicly traded companies:

  • Nasdaq Capital Market: formerly known as Nasdaq SmallCap Market for Small Cap Companies
  • Nasdaq Global Market: previously part of the Nasdaq domestic market (Nasdaq-NM) for around 1,450 mid-cap stocks
  • Nasdaq Global Select Market: the newest tier, which was previously part of the Nasdaq domestic market, and lists around 1,200 large-cap companies

The listing requirements for each tier require different levels of documentation, average market capitalization during the previous month, and number of shareholders. Companies can move from one level to another over time, depending on how they meet the requirements. The top tier, Nasdaq Global Select, typically has around 1,200 companies listed, while the lower tiers range from 1,000 to 1,500 companies each.

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Mark Holland

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