What Is a Listed Security?
A listed security is a financial instrument that is traded through an exchange, such as the New York Stock Exchange (NYSE) or Nasdaq. A listed security may be a stock, bond, or a derivative. These listed securities can be bought and sold on the open market. Private companies that go public must choose an exchange where they plan to be listed and meet its listing requirements. Companies that issue stock launch their listing through an initial public offering (IPO).
Key Takeaways
- A listed security is traded on an exchange.
- Types of listed securities include stocks, bonds, and derivatives.
- Issuers must meet certain conditions and requirements to list.
Embrace the Journey: Understanding Listed Securities
A listed security is any financial instrument that can be bought and sold on an exchange. These securities include bonds, stocks, and more complex assets like derivatives. Listed securities are crucial because they provide essential liquidity to financial markets and connect buyers with sellers.
To list on an exchange such as the NYSE or Nasdaq, issuers must go through several steps and meet numerous requirements:
- Choose an exchange.
- Hire advisors and key personnel.
- Prepare documentation such as financial statements and reports.
- Register with a regulator like the Securities and Exchange Commission (SEC).
- Meet the specific exchange’s listing requirements.
- Conduct an IPO.
After the IPO, trading begins on the secondary market. Listed companies must maintain their listed status through regular filings and compliance with the exchange’s financial requirements. Failure to comply can result in delisting, whereby the security may then trade over the counter. Different exchanges have varying listing requirements to ensure that only high-quality securities are traded.
Types of Listed Securities: Unlocking Potential
Stocks
Stocks are among the most common listed securities. Through the IPO process, companies sell shares on the primary market and after it, trading occurs on the secondary market. The secondary market allows small investors to participate and provides necessary liquidity to the financial market.
Bonds
Bonds are debt securities. When companies issue bonds, they are borrowing money from investors, who buy bonds at face value. Bonds provide investors with periodic interest payments and return the principal amount upon maturity. Bonds are vital for funding new purchases or expanding the business, obligating issuers to repay bondholders regardless of profitability.
Derivatives
Derivatives are complex financial securities whose value is dependent on an underlying asset, which may include commodities, currencies, options, or futures. These contracts are executed between a buyer and seller over an exchange. Listing on Nasdaq can be cost-effective compared to NYSE, making it a preferred choice for many newer companies.
Pursuing Excellence: Requirements to Become a Listed Security
The exchange a company chooses can affect investor perception. Some companies opt to cross-list on multiple exchanges. Here’s a glimpse into listing on the NYSE and Nasdaq:
On the New York Stock Exchange (NYSE)
- Market Selection: Options include NYSE, NYSE American, and NYSE Arca.
- Ticker Symbol Selection: Choosing a unique identifier.
- Application Submission: Includes meeting minimum market capitalization and other financial conditions.
- Designated Market Maker (DMM): Necessary for the listing.
If the listing is an IPO, an underwriter’s guarantee is required by the NYSE.
On the Nasdaq
Listing takes approximately four to six weeks and involves:
- Reserving a ticker symbol.
- Submitting an application.
- Completing a listing agreement and governance certification.
- Paying the fee.
- Fulfilling financial market conditions, varying by Nasdaq category (Global Select, Global Market, Nasdaq Capital Market).
The World’s Largest Exchange
The New York Stock Exchange reigns as the largest exchange by market cap. As of September 2023, its market cap reached $25.24 trillion, followed by Nasdaq at $20.58 trillion, and the Shanghai Stock Exchange at $6.6 trillion.
Elevate Ambitions: Why Companies List Their Shares
The primary objective is to raise capital. Listing shares allow companies to garner investment to support business growth, pay off debts, and more. This process translates investors’ contributions into equity ownership in the issuing company.
What Are Pink Sheets?
Pink sheets refer to stocks traded over the counter, outside major exchanges, typically representing smaller or emerging companies not bound by strict listing requirements.
The Bottom Line
Listed securities, including stocks, bonds, and derivatives, introduce investment opportunities for a wider market. Achieving a listing demands rigorous preparation and compliance, a crucial step towards greater financial growth and visibility.
Related Terms: IPO, Stock Exchange, NYSE, Nasdaq, Financial Instrument, Liquidity, Delisted Security.
References
- Carpenter Wellington. “The NYSE and NASDAQ: Key Similarities and Differences”.
- NYSE. “Getting Started”.
- NYSE. “NYSE IPO Guide”.
- Nasdaq. “Initial Listing Guide”, Page 3.
- Nasdaq. “Initial Listing Guide”, Pages 6-12.
- Statista. “Largest stock exchange operators worldwide as of September 2023, by market capitalization of listed companies”.
