What is the Nasdaq capital market?
The Nasdaq capital market is one of the levels of the US Nasdaq market for start-ups that have relatively low market capitalization levels. The listing requirements for companies on the Nasdaq capital market are less stringent than for the other two levels of the Nasdaq market, which focus on large companies with larger market capitalizations.
Key points to remember
- The Nasdaq capital market is a listing level for companies that need to raise capital.
- The companies listed here may be small companies in need of capital development or shell companies designed to raise capital in the public market for the purpose of acquiring other business entities.
- The Nasdaq capital market is one of three levels of Nasdaq listing.
Understanding the Nasdaq capital market
The Nasdaq Capital Market was renamed in 2005. It was originally known as the Nasdaq SmallCap Market, reflecting its listing role mainly for small capitalization companies. The change of name reflects a change in orientation towards the listing of companies that need to raise capital. It is supposed to be a less crowded entry for a small business or a special purpose acquisition company (SPAC) to capitalize and grow through Nasdaq registration.
Although the initial registration requirements are relaxed for businesses, the corporate governance required to maintain Nasdaq registration is the same at all levels. This means that companies in the Nasdaq Capital Market must have a code of conduct, an audit committee, independent directors, etc.
Registration conditions for the Nasdaq capital market
The Nasdaq capital market facilitates the listing of companies in the start-up phase, in particular compared to other leading stock exchanges with more onerous requirements. To be initially listed on the Nasdaq capital market, companies must meet all the criteria of at least one of the three listing standards: the standard on equity, the standard of market value of listed securities or the standard on total assets / total income.
All the standards share certain requirements such as a million public shares, 300 shareholders and 3 market makers. However, they differ significantly. The equity standard requires equity of $ 5 million, while the other two require only $ 4 million, and it also requires a two-year operating history, while the other two have no need an operating history. The market value standard for listed securities requires, not surprisingly, 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 net income, $ 750,000 in the most recent fiscal year or in two of the last three years, but has the lowest market value requirement for publicly held stocks, to $ 5 million.
While companies can choose the standard that best fits, the overall standard and governance required is more stringent than some early stage capital markets. Due to the costs of meeting these standards, companies listed on the Nasdaq capital market often easily exceed the minimum requirements before deciding to register. Other early stage capital markets like AIM have positioned themselves as lighter regulatory destinations to provide relay lists to companies as they grow sufficiently for the Nasdaq.
Nasdaq Third Party Listing
The Nasdaq stock market has three levels for listed companies:
- Nasdaq Global Select
- Nasdaq Global
- Nasdaq capital market
The registration requirements for each level require different levels of documentation, an average market capitalization in the previous month and a number of shareholders. Businesses can move from one level to another over time depending on how well they meet the requirements. The upper level, Nasdaq Global Select, generally has around 1,500 listed companies, while the lower levels fluctuate around a thousand companies.