The Nasdaq Capital Market is one of Nasdaq’s U.S. market tiers, designed for early-stage companies with relatively lower market capitalizations. The listing requirements for the Nasdaq Capital Market are less stringent than those for the other Nasdaq tiers, which primarily focus on companies with higher market capitalizations.
Key Takeaways
- The Nasdaq Capital Market (Nasdaq-CM) is one of three listing tiers on the Nasdaq exchange, specifically for companies that need to raise capital.
- Companies listed here are generally small companies aiming to grow capital or shell corporations looking to raise capital in public markets for future acquisitions.
- Companies that do not qualify for the more stringent requirements of the Nasdaq National Market often trade on Nasdaq-CM.
- Nasdaq Capital Market companies must meet a net income standard of at least $750,000, a minimum public float of 1,000,000 shares, at least 300 shareholders, and a share bid price of at least $4 (with some exceptions).
Unfolding the Nasdaq Capital Market
The Nasdaq Capital Market, previously known as the Nasdaq SmallCap Market until 2005, mainly lists small-cap stocks—typically those with market capitalizations between $300 million and $2 billion. The name change reflects a shift towards accommodating companies needing to raise capital. The Nasdaq Capital Market offers a crucial gateway for smaller companies or Special Purpose Acquisition Companies (SPACs) aiming to capitalize and expand.
While initial listing requirements are relatively relaxed, maintaining a Nasdaq listing demands strict corporate governance akin to that of other tiers. This includes having a code of conduct, an audit committee, independent directors, and more.
Nasdaq Capital Market Listing Requirements
The Nasdaq Capital Market is more accessible to early-stage companies compared to other senior exchanges with stricter requirements. To initially list on the Nasdaq Capital Market, firms must meet all criteria under at least one of three listing standards—the equity standard, market value of listed securities standard, or net income standard.
Shared requirements across these standards include one million publicly held shares, 300 shareholders, and three market makers (MMs). The equity standard requires stockholders’ equity of $5 million and two years of operating history, whereas the other standards only demand $4 million in stockholders’ equity without operating history requirements.
The market value of listed securities standard mandates a market value of $50 million and a publicly held share market value of $15 million. The net income standard, requiring $750,000 net income in the latest fiscal year or in two of the past three years, has the lowest public float requirement at $5 million.
Companies can choose the criteria best suited to their situation. Despite being more stringent than some early-phase capital markets, the Capital Market remains less stringent than next-level listing tiers. Companies often exceed the minimum requirements before proceeding to list.
The Three Tiers of the Nasdaq Exchange
The Nasdaq exchange categorizes listed companies into three tiers:
- Nasdaq Capital Market: Previously known as the Nasdaq SmallCap Market, for small-cap companies.
- Nasdaq Global Market: Formerly part of the Nasdaq National Market, comprises about 1,450 mid-cap stocks.
- Nasdaq Global Select Market: The newest tier, currently hosting about 1,200 large-cap companies.
Each tier has different documentation and eligibility standards based on market capitalization over the previous month and shareholder numbers. Companies can transition between tiers over time, depending on their ability to meet the evolving requirements. The Nasdaq Global Select Market hosts about 1,400 companies, while the two lower tiers include between 650 to 1,300 companies each.
Related Terms: Nasdaq National Market, Nasdaq Global Market, Nasdaq Global Select Market, Special Purpose Acquisition Company, shareholders equity, corporate governance.
References
- Nasdaq. “Microcap Stock: Definition, How It Works, Pros, Cons & Strategies”.
- Nasdaq. “Nasdaq SmallCap Market Is Renamed Nasdaq Capital Market”.
- Nasdaq. “5600. Corporate Governance Requirements”.
- Nasdaq. “5500. The Nasdaq Capital Market”.
- Nasdaq. “Initial Listing Guide”, Pages 5-14.
- Nasdaq. “Alts for All: The Growth of Alternative Investments, Explained”.
- Nasdaq. “The Nasdaq Stock Market Tiers”.
- Nasdaq. “NASDAQ Global Market Composite”.
- Nasdaq. “NASDAQ Capital Market Composite”.
- Nasdaq. “NASDAQ Global Select Market Composite”.
