Rich and Wealth

Other Consequences (4)

Financial listing requirements typically focus on such quantifiable measures as net tangible assets, market capitalization, profitability, and a company’s share price. For example, among the financial requirements for initial listing on Nasdaq (National Association of Securities Dealers Automated Quotation System), an issuer must have net tangible assets of $4 million, a market capitalization of $50 million, or net income of $750,000 in the most recently completed fiscal year or in two of the last three most recently completed fiscal years. In addition, an issuer must have a minimum share price of $4. For continued listing, these financial requirements become net tangible assets of $2 million, a market capitalization of $35 million, or net income of $500,000 in the most recently completed fiscal year or in two of the last three most recently completed fiscal years. The minimum share price requirement is dropped to $1. For listing on Nasdaq’s more prestigious National Market System, the financial listing requirements are more stringent.

Qualitative listing requirements, including such corporate governance standards as the need to provide shareholders with timely annual and interim reports, the need for independent directors, an audit committee, and an annual meeting of shareholders, give the exchanges more room for applying judgment in deciding whether to delist a company’s securities. For example, Nasdaq’s Marketplace Rules note that Nasdaq constantly reviews an issuer’s corporate governance activities and that it may take appropriate action, including the placing of restrictions on or additional requirements for listing, or the denial of a security’s listing, if it determines that “there have been violations or evasions of such corporate governance standards.”69 Depending on the facts, news that accounting problems have led the SEC to investigate a company’s management for alleged violations of the antifraud provisions of the securities laws could give an exchange such as Nasdaq the ammunition its needs to consider delisting that company’s securities.

When a company’s shares are delisted, it can choose to list on a lesser-known exchange that has less stringent listing requirements. For example, a company that is delisted from Nasdaq may choose to have its securities listed on the much-less-regulated Bulletin Board. The problem is that such lesser-known exchanges have much less visibility and, likely, lower trading volumes. As a result, there is less liquidity for a company’s shares and, probably, a lower price.

Taken From : The Financial Numbers Game