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The Securities Edge Securities Blog for Middle-Market Companies

Where to list: NYSE or Nasdaq?

Posted in IPOs

Coke vs. Pepsi.  Apple vs. Microsoft.  Energizer vs. Duracell.  All are great brand rivalries.  Today we look at one of the biggest rivalries in the capital markets space: NYSE vs. Nasdaq.  And ever since the Nasdaq debacle with the Facebook IPO, the rivalry has only intensified. 

Companies going public face lots of decisions including where to list their shares.  Ever since the dot-com craze of the late 1990s, the rivalry between the NYSE and Nasdaq has been fierce.  Each exchange attempts to woo each other’s clients to switch their listing.  In fact, some big names have changed exchanges over the past year.  Texas Instruments and Viacom switched from the NYSE to Nasdaq in 2011.  Earlier this year, TD Ameritrade left Nasdaq for the Big Board, but Nasdaq countered by poaching Kraft.  Nasdaq (with its history of winning the listings of technology companies) and the NYSE have been fighting hand-to-hand in the technology company space with Groupon and Zynga choosing Nasdaq and LinkedIn and Pandora going with the NYSE.  So is one exchange better than the other?  This post will examine some of the most important factors you should consider in making your decision.

Historic DifferencesThe NYSE started operating in 1792 while Nasdaq started up in 1971.  The 200 year head start by the NYSE led to a couple of differences initially, but these changes have largely disappeared over the past decade.  Nasdaq has no physical trading floor; it is 100% electronic.  Because the NYSE operated without the assistance of computers for the bulk of its existence, it has a physical trading floor; however, since 2007 virtually all NYSE stock can be traded electronically.  One of the other major differences went away in 2008 when the SEC began allowing Nasdaq-listed companies to have one-, two- or three-letter ticker symbols.  Historically, all Nasdaq-listed companies needed to have a four letter trading symbol.  (Zillow was the first Nasdaq-listed company to take a one-letter trading symbol, “Z.”)  The ticker change followed Nasdaq’s conversion from an interdealer quotation system to a licensed national exchange in 2006, which from an issuer’s perspective, had little to no effect other than to further legitimize the then 35-year old “upstart” Nasdaq.

Branding and MarketingThe biggest difference between the two exchanges is the public’s perception of the exchanges.  Nasdaq with its upstart image and all electronic trading platform has attracted more technology-based companies, many of which did not qualify to list on the NYSE when they originally went public.  The Big Board, on the other hand, has traditionally listed the biggest public companies in the world.  Even the way the two exchanges market themselves show their different heritages.  Nasdaq publicizes listed companies and their products on its seven-story electronic billboard in New York’s Times Square.  The NYSE has the familiar trading floor bell that marks the beginning and ending of trading each day.  Kraft cited the difference in marketing when it announced it was switching to Nasdaq, as it believes the Nasdaq billboard in Times Square will give its products greater visibility. So, part of the decision may hinge on which exchange will give your company the most visibility and best marketing opportunities.  Do you want to position yourself as a blue chip company associated with a 200 year old brand or as a more cutting edge company?  Where are your competitor’s listed?

Cost of ListingIf your only concern is cost, then Nasdaq is probably the exchange for you.  Nasdaq has three market tiers each with increasing minimum requirements (and theoretically prestige): Global Select Market, Global Market, and the Capital Market.  While there is a range of fees, listing 75 million shares on the Global Select Market or the Global Market will run your company $225,000 for the initial listing fee and an additional $68,500 annually to continue the listing.  Listing the same number of shares on Nasdaq’s Capital Market will cost $80,000 for the initial listing fee and an additional $27,500 annually.  For the same listing on the NYSE the initial listing fee would be $300,000 with an additional $69,750 due annually. 

Different Qualification Requirements to ListGenerally, other than for the smallest companies going public, the listing requirements of the two exchanges should not impact a decision on where to list because there is not that much of a difference between the two exchanges’ listing requirements.  An issuer seeking to list on an exchange can qualify if it meets one of several different tests set forth by the NYSE and Nasdaq, which basically involve a combination of meeting income, assets, cash flow, valuation and revenue minimums.  Nasdaq’s Global Select Market tier has generally the highest standards to meet.  Again, most companies (that have any business going public) will meet one of the standards of both exchanges, so this should not be a big factor.

Corporate GovernanceThe Sarbanes-Oxley Act of 2002 requires that audit committees be independent, but both the NYSE and Nasdaq also require that a majority of an issuer’s directors be independent.  What constitutes “independent” is slightly different under the two exchange’s listing standards.  In addition, each exchange has its own corporate governance standards.  Without trudging through the “weeds” to find technical differences between the two exchanges, here are some high level relatively significant differences that may cause you to choose one exchange versus the other: 

  • NYSE-listed companies must have an independent compensation committee and an independent nominating committee.  Nasdaq-listed companies, on the other hand, have the option of having an independent compensation committee and independent nominating committee or having executive compensation and nominating decisions made by a majority of their independent directors.  Smaller companies with smaller boards may find the Nasdaq standard more flexible (although you will have to disclose in your proxy statement why you don’t have a separate compensation and nominating committee).
  • A director who is an employee of an organization that has made payments to or received payments from the issuer in an amount that exceeds the greater of 2% of the payment recipient’s gross revenues or $1 million would not be independent under the NYSE rules.  You would exclude charitable contributions in the calculation.  The application of the Nasdaq rule, however, tends to be much stricter in certain circumstances by applying a test of 5% of the recipient’s gross revenue or $200,000, whichever is greater.  For Nasdaq-listed companies, you would include charitable contributions in assessing independence. 
  • NYSE-listed companies must have an internal audit function while Nasdaq-listed companies do not. 
  • NYSE-listed companies must have corporate governance guidelines.  Nasdaq does not have such a requirement.
  • The CEO of NYSE-listed companies must certify annually that the CEO is not aware of any violations of the listing standards and the company must affirm annually that it is in compliance with the corporate governance listing standards.  Interim written affirmations (within 5 business days) must be submitted any time a change occurs in the composition or independence of the Board or any of its committees and certain other matters.  Nasdaq-listed companies need only certify upon their initial listing.

While there are other technical differences between the exchanges, I think these are some of the most relevant factors to consider when selecting an exchange.

 

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