Author: Bill Fickling (TAP Partners)
For companies in a growth mode, the upside to becoming a publicly-traded company can be significant: improved access to capital and increased liquidity, exposure, and credibility.
But the journey to success on an exchange can be difficult and not right for every company, with each market having their own requirements, pros, and cons. It’s also important to know that not all exchanges are the same:
- In an auction exchange, stocks are bought and sold through a bidding process. The New York Stock Exchange (NYSE) is the largest auction stock exchange. It matches the highest price a buyer is willing to pay with the lowest price a seller is willing to accept. The NYSE operates as a hybrid with electronic auctions and in-person auctions on the market floor.
- A broker-dealer exchange buys shares from people even if there isn’t a seller. Because of this, broker-dealer exchanges need to hang onto a certain amount of stocks at all times. Nasdaq is an example of a broker-dealer exchange. However, unlike the NYSE, Nasdaq operates entirely electronically.
- Over-the-counter (OTC) stocks are less expensive stocks that small companies trade outside of the larger, more traditional stock exchanges. They are ideal for smaller companies that don’t want (or can’t afford) to pay the hefty fees imposed by larger exchanges like NYSE or Nasdaq. OTC stocks are hosted on several different electronic platforms.
If you believe your company is an appropriate candidate for one type of exchange, there are additional factors to consider before pursuing a listing:
- Investor location is important because investors usually prefer trading securities in their home country rather than on a foreign market. So, for example, if you’re targeting American investors, you’ll want to consider one of the American markets.
- The type of company you are will often dictate where you should list, since different exchanges cater to different types of businesses. Nasdaq, for example, is tech-centered, making it appealing for tech companies looking to go public. Conversely, OTC stock exchanges are geared toward smaller companies, so they might be a good option if you don’t meet the requirements for the larger stock exchanges and still want to go public.
- Shareholder numbers will also determine your place, since larger exchanges require a minimum number of shareholders to list. For some, it makes sense to start by listing on an OTC and then consider uplisting to gain more exposure and liquidity as the business grows.
Whether you’re already listed on a stock exchange or are thinking about doing it in the future, TAP Financial Partners is here to help. TAP List helps businesses determine when to uplist to a senior market to get more access to capital, liquidity, and exposure.
Is uplisting the right move for your company? Contact us to find out.