Uplisting to a National Exchange

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Uplisting to a national exchange is an important goal for many small, over-the-counter (OTC) companies, but it is one that needs to be vetted thoroughly. There are several important considerations including cost, ongoing listing requirements, timing, and adequate preparation.

Once your company is trading on a national exchange – either the NYSE or NASDAQ – you will see significant, tangible benefits:

1 | Enhanced credibility.
By holding publicly-traded companies to a higher standard, an uplisting creates higher levels of perceived credibility and legitimacy for companies that meet the stringent requirements set by the exchanges.

2 | Broader investor reach and visibility.
By virtue of trading on a national exchange, companies may meet the threshold for many Wall Street analysts to potentially cover the company with research. This will broaden visibility and extend reach to new investors through their sales organization.

3 | Expanded access to capital.
Many funds have mandates that preclude them from investing in illiquid and/or OTC traded entities, thus limiting shareholder access. Listing on a national exchange exponentially opens up the universe of potential investors.

4 | Increased liquidity.
Newly uplisted companies benefit from higher trading volumes and therefore greater liquidity. Liquidity can be a key factor in a fund manager’s decision to own a stock, as well as other structural factors. Studies confirm that after uplisting, companies often experience significant daily volume increases.

Once you decide to uplist, we suggest that you make a strategic plan with month-by-month deliverables and timing expectations. The process can be distracting for the management team, and it’s important to ensure that requirements are met well in advance of the application process. Specifically, there are a number of conditions that companies must meet in order to move from being traded OTC to being listed on the NYSE or NASDAQ; broadly speaking, these conditions fall into two categories: meeting listing requirements and successfully working through the application and approval process. Each exchange must meet requirements on an ongoing basis without any exceptions. That is why it is imperative to factor in long-term objectives and milestones when considering an uplist.

Listing requirements.
The stock must meet listing requirements for its price per share, total value, daily or monthly volume, revenues, and SEC reporting. The three requirements that tend to be the steepest to overcome and may require advanced coordination are the minimum share price requirement, shareholder equity standard, and the threshold for minimum number of shareholders.

Minimum share price. As it relates to minimum share price requirements, many companies need to enact a reverse split in order to meet the share price requirement. We suggest that you consider the timing of the split, either immediately preceding or in conjunction with the uplisting.

Shareholder Equity standard. Both the NYSE and the NASDAQ require companies that are cash flow negative to maintain 12 months of cash on the balance sheet. The company will often be required to raise capital in order to satisfy this requirement. Again, we suggest that this be carefully timed to coincide with a potential reverse split. We also suggest you consider the approximate number of shareholders that may need to be added to satisfy distribution requirements, which is the next major hurdle.

Minimum number of shareholders. Both exchanges require a minimum number of discreet shareholders. This can be achieved through a financing that is executed to ensure a specific number of shareholders are added.

Application and approval process.
The company must file an application and be approved for listing by the selected exchange. The application process includes detailed information on the major shareholders, management team, and reporting practices. Particular scrutiny is given to the board of directors, including requirements that the majority of directors are independent and corporate governance committees are intact. We suggest that changes to the board are made well in advance of the uplisting process. Sarbanes Oxley (SOX) compliance is also required.

After a company meets the requirements for an uplisting, approval can happen almost immediately or it can take a number of weeks. If an application is not approved, the exchange will often work with the company on solutions or extend the timetable. Keep in mind that it is in the best interest of the exchange to list your company! We suggest that any company considering an uplisting should be proactive in its plans to uplist and engage outside counsel to navigate the tedious process.

Timing and success.
All in, the timing and success of uplisting is not predetermined and can be uncertain. There are many variables in play, and several of the requirements should be considered long before the process begins.  Given the effort and cost (direct and indirect) associated with uplisting, we recommend that you fully understand the process and have a solid strategy in place before proceeding.

Conclusion – be prepared.
We can help you to devise a strategic plan and timeline to help with an uplisting process. Importantly, we can begin by outlining what changes need to be made in order to meet listing requirements for either the NYSE or NSDAQ. While both exchanges are Self-Regulated Organizations (SROs) and adhere to SEC rules and regulations, they offer a variety of different models, so we recommend speaking with both entities to determine which model will be most achievable for your company.

Our professionals have extensive experience in navigating this process and can advise on the differences in listing requirements between the two exchanges. A strong IR partner can help with the many steps to successfully uplisting, and we believe that needs to be supported with ongoing investor outreach and transparency. We look forward to working with you!

Debbie Kaster, Managing Director

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