What is the Process of Moving from an OTC Market to A Major Exchange?

by Andrew McGuinness  //  aug. 10, 2018

The difference between an OTC or over the counter market and a major exchange is much like the difference between over the counter and department store beauty supplies. Over the counter beauty supplies are not only cheaper but much less popularly used by professionals than that of department store beauty supplies.

The OTC market holds no candle to a major exchange. It is a much more diluted version of the exchange and for this reason, if any company is looking to grow and become a success, this switch is essential. Here are a few ways of how a company is able to move from an OTC market into a major exchange in order to expand and thrive within the real world.

1. Follow requirements

First and foremost, it is necessary that a company adapts itself to follow certain criteria that all companies within the major exchange are obligated to follow. Guidelines tend to refer to price per share, corporate profits, total value, revenues, daily/monthly trading volume, number of shareholders and SEC reporting requirements.

Different exchanges, however, have different requirements. Nasdaq, for instance, insists on having 1.25 million public shares which must be distributed among 550 investors at the very least. The New York Stock Exchange, on the other hand, only allows companies to form a part of the exchange if and when they possess 1.1 million publicly owned shares that are held by at least 2,200 shareholders.

2. Paperwork

In order to be approved to enter into a major exchange, there is plenty of paperwork involved. There is an application involved, within which you should attach financial statements confirming the fact you are suited to the requirements above and belong within a major exchange. The major exchange will then contact the OTC market your company is leaving and express the fact that the company would like to willingly remove itself from the market. This would likely involve a press release in order for shareholders to be aware of the on-goings of the company and their investments.

The best part of this paperwork being processed and successfully moving into a new market is the fact that a company is allowed to pick up where it left off from its time on an OTC market. Investors might expect initial public offerings or IPOs to be offered instead of the stocks being traded normally, as any other longer-seeded company within the exchange would be treated.

3. What is the point of moving?

The point of moving from a smaller scale OTC market and into a major exchange is seemingly obvious. Not only do larger markets provide more liquidity, but they are official and allow your company to be seen as official as well. This is along with the clear reason that the audience that has now gained access to and is able to view the company is discernibly more expansive.

Once you have made it onto a major exchange, however, you should be aware that you may switch to another major exchange at any time. You should not feel obligated to stay with a major exchange just because it becomes safe and comfortable. Different major exchanges have different benefits and just because an exchange is exceedingly popular, the New York Stock Exchange, for example, does not mean that it is right for your company.

The Nasdaq has some of the lowest fees when compared to its fellow major exchange. Every exchange has something going for them, but your goal is to find the one that is well suited to your company





Get unlimited access to our Learning Center,
Broker Insights and Exclusive Promotions for Free!

Open an account