Learning the Landscapes of the Stock Exchange and Listing Requirements

Quick quiz for new or prospective traders: NASDAQ and NYSE Amex Equities. NYSE Euronext. OTC and OTCBB Do you know what all these mean?

If youre stepping into the stock market, youll want to know what these letters represent. Each of the above are abbreviations for U.S. stock exchanges, the marketplaces that form the backbone of American trading.

To bring you up to speed, lets look at each of the major exchanges, and consider what companies have to do to qualify as a stock listing. Attendant to all this, youll find some helpful information, here, about what listings can mean to investors, about how and where to find smaller companies to invest in, especially on exchanges that are smaller than the big guys.

NYSE Euronext:  The Internet is full of old information, so be careful when you start to navigate the exchanges. Its important to know what they were called  so that you wont get confused by all the references to exchange-names that are no longer used. NYSE Euronext is one example. Once known simply as the New York Stock Exchange, this is the biggest of the worlds trading floors. NYSE merged with the Euronext exchange in 2007, and the resultant NYSE Euronext then merged with German marketplace organizer Deutsche Börse AG in early 2011.

Requirements for NYSE-Euronext listed companies:

• Companies must have no fewer than 2,200 shareholders, with a trading volume of 100,000 shares per month.
• Stocks must be priced no lower than $4 per share.
• There must be a base inventory of 1.1 million shares of the company on the marketplace, and the combined value of its public shares cant be less than $40 million.
• Companies must have at least $2 million minimum in pre-tax earnings in the past two fiscal years and total assets equaling or exceeding $75 million.
• So, who lists on the NYSE Euronext? A few familiar names would be: 3M; Molson Coors Brewing Company; Home Depot; Avis, and Carnival.

NASDAQ Stock Market (National Association of Securities Dealers Automatic Quotations):  The second largest exchange in the world and the highest-volume online stock exchange on the planet.

These are NASDAQ requirements:

• To be listed on NASDAQ, a company must have a minimum of 1.25 million shares on the market with a stockholder equity of at least $55 million.
• The company must show that its trading volume equaled or exceeded 1.1 million shares in the most recent year.
• Its stocks have to trade at no less than $5 per share, and the companys total assets must equal $80 million or more in the most recent fiscal year.
• NASDAQ wants companies with $90–$100 million in revenue over the past fiscal year, and pre-tax earnings of at least $2.2 million in each of the two most recent years.
• Players on the NASDAQ that youre sure to have heard of: Microsoft, Intel, Yahoo, eBay, and Comcast

NYSE Amex Equities:  Another exchange thats been through the names mill. Once called AMEX, or the American Stock Exchange, it is now part of the New York Stock Exchange. Then, NYSE Euronext acquired it in 2008 and merged it with Alternext, a European exchange. For a while the whole package became NYSE Alternext U.S. Finally, in 2009, the name was changed to NYSE Amex Equities.

NYSE Amex Equities requires that companies:

• Be at least two years old.
• Have no fewer than 400 shareholders.
• Have amassed stockholder equity of at least $4 million.
• Sell stocks for no less than $2 per share.
• Have pre-tax income no less than $750,000 in two out of its three most recent fiscal years.
• Plenty of players in the financial world that youll recognize on this exchange: JPMorgan and Wells Fargo, for example, and also a lot of utilities and energy companies trade here.

OTC (Over-the-Counter):  Heres where it gets a little wild. Also known as pink sheets, the over-the-counter market is the world of electronically traded stocks. Mostly the smaller fish, these. There are no listings requirements, but companies must sign agreements with the OTC Compliance Unit, which is operated by NASDAQ. Thats the exchange that also operates the OTCBB (or Over-the-Counter Bulletin Board). Under the BB system, companies must meet certain eligibility requirements. They must be registered with the Securities and Exchange Commission (SEC) and they have to be current in their filings with SEC and any other applicable federal authority.

Other U.S. Exchanges:  If youre looking for other exchanges — and there are numerous examples of smaller entities to comb through — heres a helpful list of links to ones in the U.S. provided by World-Stock-Exchanges.net .

So, what are you supposed to do with all this information? Whats the advantage or disadvantage of going with an exchange-listed stock versus an OTC? Heres a breakout of the major points to take away:

• The goal of listing standards is to protect investors.
• By governing what kind of companies trade under their supervision, the exchanges provide a kind of guarantee to traders: these businesses are robust enough to suggest an aversion to failure.
• If a company stops complying with the basic requirements, it risks getting delisted. If it gets delisted, it loses its access to the bulk of the big time investors.
• Remember, theres money to be made in smaller transactions. Thats part of the reason the OTC market thrives. By trading stocks that come in for less than $1 a share — investors can seek that penny stock that just might blow up in a few years time.

And heres a final tip: You can also search for stocks that were once big time and now are delisted. If you choose wisely, you just might pick a pink sheet thats on its way back up, stocking up on those shares can mean huge returns down the line.