In the world of investor relations, most independent agencies, like KCSA, tend to work with several small companies whose stock trades at a relatively low price and market capitalization. These stocks are typically known as microcap or penny stocks (By definition, microcap stocks have a market capitalization between $50 million and $300 million). Many of these companies trade over-the-counter (OTC) and are quoted on OTC systems such as the OTC Bulletin Board (OTCBB), OTCQB, OTCQX and OTC Pink, formerly known as the “Pink Sheets.”
To many, companies that trade on such exchanges are typically categorized as “riskier” investments. This is due to the lack of public information on these companies as well as the fact that there are no minimum quantitative listing standards for these exchanges. Many institutional investors have by-laws that prevent them from investing in companies that trade on OTC exchanges and retail investors are usually asked to sign a waiver from their broker/dealer stating they understand the risks associated with OTC exchange traded stocks. Even online brokerages have restrictions when it comes to OTC stocks. This is a big disadvantage for a small company seeking liquidity.
So how does a company go about increasing its visibility with institutional investors as well as drive liquidity? My advice: “UPLIST TO A MAJOR EXCHANGE!” Over the past few months at KCSA, we have helped our clients Neonode and Attunity uplist to major exchanges – Neonode, has already seen an increase in volume and stock price.
According to a recent NASDAQ study, [CM1] OTC companies upgrading to NASDAQ had an average 3 month average daily volume (ADV) of 59,509 shares prior to uplisting compared to 137,905 shares after uplisting. That’s a decent upswing in terms of volume.
In addition to increased liquidity, uplisting to a major exchange provides your company with regulatory oversight in terms of monitoring against potential trading violations and listing qualifications. Companies get the opportunity to be included in indexes such as the NASDAQ and S&P as well as the Russell 2000 & 3000. Companies also have a greater chance to receive analyst coverage if uplisting to a major exchange. When engaged in merger or acquisition talks, a company’s stock is viewed as a more attractive bargaining chip if it’s listed on a national or global exchange. Do you see where I’m going here?
As a CEO you may wonder, “What do I need to do to uplist to a major exchange?” The chart below outlines the quantitative requirements to uplist to the NASDAQ Capital Market and NYSE MKT (formerly known as the AMEX). These two exchanges are typically the next step for a company uplisting from one of the OTC exchanges.
Companies must adhere to additional requirements, such as corporate governance and exchange listing fees, in order to uplist to a higher exchange. However, in my opinion, if a company has the opportunity to uplist to a major exchange, it should make the move. As along as the management team is successfully executing on its growth strategy and producing a constant flow of news, an uplisting not only benefits the company but also benefits the shareholder.