Nasdaq Capital Market: Requirements for Small Cap Listings

What Is the Nasdaq Capital Market?

The Nasdaq Capital Market is a tier for early-stage companies with lower market capitalizations on the U.S. Nasdaq exchange. Listing requirements for companies on the Nasdaq Capital Market are less stringent than for the two other Nasdaq market tiers, which focus on larger companies with higher market capitalization.

In-Depth Insight Into 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 towards listing companies that need to raise capital. It's meant to be a less encumbered entrance for a smaller company or a Special Purpose Acquisition Company (SPAC) to capitalize and grow through a Nasdaq listing.

While initial listing requirements are more relaxed, maintaining a Nasdaq listing requires the same corporate governance across all tiers. This means Nasdaq Capital Market companies must have a code of conduct, an audit committee, independent directors, and so on.

Criteria for Listing on the Nasdaq Capital Market

The Nasdaq Capital Market simplifies listing for early-stage companies compared to senior exchanges with stricter requirements. To list on the Nasdaq Capital Market, companies must meet one of three standards: equity, market value of listed securities, or net income.

All the standards share some requirements such as one million publicly held shares, 300 shareholders, and three market makers (MMs). However, these also differ in important ways. The equity standard requires stockholders' equity of $5 million, where the other two require only $4 million, and it also requires an operating history of two years, while the other two do not require an operating history.

The market value of listed securities needs to be $50 million, with publicly held shares at $15 million. The net income standard is the only one requiring a net income, $750,000 in the latest fiscal year or in two of the last three years, but has the lowest requirement for market value of publicly held shares at $5 million.

Companies can choose the best-suited standard, but Nasdaq's listing standards and governance are stricter than some early-phase markets. Because of the costs involved with meeting these standards, companies listing on the Nasdaq Capital Market often handily exceed the minimum requirements before they decide to list.

Other early phase capital markets like the alternative investments market, or AIM, have positioned themselves as lighter regulation destinations to provide bridge listings for companies as they grow large enough for the Nasdaq.

Exploring Different Nasdaq Listing Tiers

The Nasdaq exchange has three tiers for listed companies:

• Nasdaq Capital Market: formerly known as the Nasdaq SmallCap Market for small-cap companies
• Nasdaq Global Market: previously part of the Nasdaq National Market (Nasdaq-NM) for about 1,450 mid-cap stocks
• Nasdaq Global Select Market: the newest tier, which was previously part of the Nasdaq National Market, and lists about 1,200 large-cap companies

The listing requirements for each tier require varying levels of documentation, average market capitalization over the previous month, and a number of shareholders. Companies can move between tiers over time based on meeting requirements. The top tier, Nasdaq Global Select typically has about 1,400 companies listed, while the lower tiers fluctuate around 650 to 1,300 companies each.