Choosing a Stock Exchange

Selecting the right stock exchange for your company is an important step toward a successful IPO. This article focuses on five key issues identified by executives who recently went through the IPO process. Examples from the New York Stock Exchange (NYSE) and Nasdaq—the largest stock exchanges in the world—are used to illustrate these issues and provide a comparison of the two most popular exchanges.

Market Perception

When choosing a stock exchange, one of the first things executives notice is how the market perceives each exchange. For instance, the NYSE is home to many of the largest and oldest companies in the United States, such as Berkshire Hathaway, Johnson & Johnson, Exxon Mobile, and JPMorgan Chase. Its historic location on Wall Street dates back to 1792 when the first securities began trading in New York, and many view it as the most prestigious stock exchange in the world.

In contrast, Nasdaq (founded in 1971) has a reputation for growth and technology companies. This reputation has helped Nasdaq secure more IPOs and maintain a higher trade volume than the NYSE despite the NYSE’s significantly higher market capitalization. Part of Nasdaq’s attraction for fast-growing companies is its three-tier market system, which includes the Nasdaq Capital Market, Global Market, and Global Select Market. Establishing a multi-tiered system has aided Nasdaq’s reputation for being more inclusive of both high-growth and mature companies.

Listing Requirements

As illustrated by Nasdaq’s multi-tiered system, the market’s perception of an exchange may be influenced in part by the stringency of its listing requirements. The NYSE’s listing requirements and Nasdaq’s listing requirements each offer multiple standards, one of which must be met to list on the respective stock exchange. Of Nasdaq’s three tiers, the Global Select Market has the most exclusive financial and liquidity requirements and is comparable to the NYSE. Nasdaq’s Capital Market, previously known as the SmallCap Market, has the least stringent listing standards and charges significantly lower fees.

Recently, however, the NYSE has taken steps to compete for developing companies by loosening certain listing standards¹ and offering reduced fees to pre-revenue companies. These changes have met some success, and the NYSE now hosts many household names, including Snap Inc., Uber Technologies Inc., Twitter, and Spotify. These changes to the NYSE’s listing requirements, combined with the maturation of many Nasdaq listings (such as Amazon, Google, Apple, and Facebook), have begun to blur the distinction between the two exchanges. Therefore, market perception and listing requirements may become less of a factor in future listings.

Listing Fees

For executives, minimizing fees is a high priority because many pre-IPO companies are growing quickly and have relatively little free cash flow. The NYSE and Nasdaq require two different fees in the first year of listing: (1) an initial entry fee and (2) a recurring annual fee. Both exchanges calculate these fees based on total shares outstanding.

‍The NYSE, as of January 1, 2020, charges an entry fee of $50,000 plus $0.004 per share (subject to a $150,000 floor and $295,000 ceiling) and an annual fee of $0.00113 per share (subject to a $71,000 floor). The annual fee is prorated in the first year of listing based on the listing day. In any year, the total maximum fee (including all fee types) is $500,000. NYSE recently announced that “pre-revenue companies,” i.e. companies with annual revenue less than $5 million, are eligible for a 75% reduction in annual fees for up to three years.

‍Nasdaq’s fees depend on which of its three market tiers an applicant applies for. As of January 1, 2020, the lowest tier, the Nasdaq Capital Market, charges an entry fee between $50,000 and $75,000. The upper tiers, the Nasdaq Global and Global Select Markets, offer equivalent rates which range from $150,000 to $295,000. Annual fees for the Nasdaq Capital Market range from $43,000 to $77,000 while the upper tiers range from $46,000 to $159,000. Nasdaq prorates first-year annual fees according to the month of initial listing.

The NYSE’s fee reduction for pre-revenue companies competes directly with the Nasdaq Capital Market for developing companies. However, this discount applies only to annual fees and does not reduce the NYSE’s significantly higher initial entry fee; thus, small growth companies may still prefer the Nasdaq Capital Market over the NYSE. The Nasdaq Global and Global Select Markets are comparable to the NYSE in entry fees, but the NYSE’s annual fees become significantly greater than Nasdaq’s for companies with more than 150 million shares outstanding. As you examine listing fees, consider when you plan to go public and how many shares you will have outstanding. These factors will ultimately determine the amount you will pay in prorated fees in the year of your IPO.

Publicity

Publicity is a major factor for executives because many pre-IPO companies are relatively unknown, and IPO success is often contingent on how well the public knows the company. Both the NYSE and Nasdaq offer help in this regard by arranging publicity events, including pre-IPO marketing support and customized promotional events on the day of an IPO. For example, when wireless speaker company Sonos went public on the Nasdaq in 2018, Sonos collaborated with Nasdaq to redesign the sound of the market’s opening bell, which served to generate publicity and spread awareness of Sonos’ services. When fitness company Fitbit went public on the NYSE in 2015, an outdoor workout event was held in front of the NYSE’s headquarters on Wall Street, which similarly attracted media attention. As you plan for an IPO, be sure to initiate discussions early on with each exchange to determine how they can help spread awareness of your company’s brand and its upcoming IPO.

Ticker Symbol

The availability of an appropriate ticker symbol is another major consideration in choosing a stock exchange. A ticker symbol is used to identify a company’s publicly traded shares and often serves a dual purpose in branding a company. For example, a company may choose a ticker symbol based on the company’s name (“AAPL” for Apple Inc.), core competency (“BOOM” for Dynamic Materials), culture and geography (“LUV” for Southwest Airline, headquartered in Love Field, Dallas), products (“BUD” for Anheuser-Busch InBev, producer of Budweiser beer), mission (“YUM” for Yum! Brands, Inc.), or merger history (“HPQ” for HP, Inc. following HP’s merger with Compaq), among other reasons. Ticker symbols are typically one to four characters long, although single-letter ticker symbols are now considered to be an elite group due to their scarcity (“F” for Ford Motor Company).

Unless a ticker symbol is already in use, companies are free to choose any combination of letters; however, each exchange keeps certain ticker symbols reserved, which further limits which letter combinations are available. You should inquire about the availability of your desired ticker at each exchange, as this may become a determining factor in which exchange you choose.

Conclusion

Choosing where to list your company’s shares is an important step toward a successful IPO. As you consider the above points, remember that the NYSE, Nasdaq, and other exchanges are usually willing to negotiate custom deals to attract new listings. Actively engaging multiple exchanges early on and communicating your company’s needs will help you better weigh the pros and cons of each exchange prior to making a final decision.

Resources Consulted

• Nasdaq Market Tiers
• Nasdaq Listing Requirements
• NYSE Quantitative Requirements
• NYSE Listing Fees
• NYSE Cuts Listing Fees
• The NYSE’s Spotify Rule