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 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.
Although the initial listing requirements are relaxed, the corporate governance required to maintain a Nasdaq listing is the same across all tiers. This means Nasdaq Capital Market companies must have a code of conduct, an audit committee, independent directors, and so on.
Listing Requirements for the Nasdaq Capital Market
The Nasdaq Capital Market makes it easier for early-stage companies to get listed, especially when compared to other senior exchanges with more onerous requirements. To list initially on the Nasdaq Capital Market, companies must meet all of the criteria under at least one of three listing standards—the equity standard, the market value of listed securities standard, or the total assets/total revenue standard.
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 standard requires a market value of listed securities of $50 million and a market value of publicly held shares of $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.
Although companies can pick the standard that best fits their situation, the listing standards and the required governance are more stringent than some early-phase capital 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.
Nasdaq Listing Tiers
The Nasdaq exchange has three tiers for listed companies:1
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 number of shareholders.
Companies may move from one tier to another over time depending on how they meet requirements. The top tier, Nasdaq Global Select typically has about 1,200 companies listed, while the lower tiers fluctuate around 1,000 to 1,500 companies each.
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