Financial markets are complex — and there are two basic ways they are organized. Stocks can be traded on a listed exchange or in an over-the-counter (OTC) market. It’s crucial to contact a Manhattan securities attorney to understand the difference if your company plans to issue securities.
What is a Listed Exchange?
An exchange is a centralized location where various financial instruments are traded under the supervision of the exchange. They help to make sure trading is done in an orderly way — and provide liquidity. Corporations that are listed must follow and adhere to strict guidelines mandated by the Securities and Exchange Commission. Stocks are available on a listed exchange after a company issues its initial public offering.
While the New York Stock Exchange and NASDAQ are the most well-known listed markets in the United States.
Every company that lists on an exchange must meet stringent criteria. For example, to become listed on NASDAQ, a company must put up at least 1,250,000 publicly traded shares for sale and have a regular bid price of $4.00 at the time of listing. To be listed on the NYSE, a corporation must have 400 stockholders with 100 shares each — the company must also have 1.1 million or more outstanding shares each worth $40 million or more with a price-per-share no less than $4.00.
What is Over-the-Counter Trading?
Over-the-counter trading takes place in a decentralized market where the participants exchange stocks, commodities, derivatives, and currencies. OTC-traded securities are divided into three markets, including the OTCQX, OTCQB, and OTC Pink marketplaces. In contrast with listed exchanges, which have physical locations, over-the-counter trading is carried out electronically.
Securities can be traded by companies on the OTC when they do not meet the requirements to list on one of the listed exchanges. Many securities traded on the OTC marketplaces include those that are issued by startups or small companies. Over-the-counter markets are less regulated than listed exchanges, resulting in limited liquidity and greater risk. They are still subject to oversight by the Securities and Exchange Commission.
Can a Stock Move From the OTC to a Major Exchange?
A company might want to switch to one of the larger exchanges for several reasons. A company might want to switch to one of the larger exchanges for liquidity and increased visibility. While it is possible for a company that trades over the counter to move to a major exchange, several steps must be taken before they can list their securities on that new exchange. For example, the company and its stock must meet the listing requirements for its price per share, trading volume, total value, and revenue. It must also satisfy the Securities and Exchange Commission reporting requirements.
A company that wishes to move to a major exchange must also be approved for listing after filling out an application and providing financial statements. Usually, a company must give written notice to the previous exchange, advising that it wishes to delist. Also, an exchange might require a press release to be issued to notify shareholders.
Contact an Experienced Manhattan Securities Attorney
Understanding the OTC markets and major exchanges can be confusing. A skilled securities attorney can help ensure you satisfy the SEC requirements. Brinen & Associates is committed to assisting companies and investors with a wide variety of securities matters. Call (212) 330-8151 or send us a message to learn more about how we can help.