Influential Factors for Penny Stock Company Exchange Listings - dummies

Influential Factors for Penny Stock Company Exchange Listings

By Peter Leeds

The majority of publicly traded companies, and certainly all the more serious and professional ones, have a listing on a stock exchange. Before they trade, however, or before they work to move from one market to another, they must take several factors into account:

  • Fees: The greater the benefit from the listing, the higher the fees will be for listing on the exchange. Companies may pay hundreds of thousands of dollars to be listed initially on the New York Stock Exchange, along with $5,000 to $40,000 in fees annually, depending on the company. A listing on markets with lower visibility costs considerably less.

  • Listing requirements: Each exchange has its own requirements for any company interested in being listed. These requirements are not only for initial approval but are also ongoing. For example, some exchanges require that companies maintain minimum share price, minimum number of unique shareholders, or even a certain makeup of their board of directors.

    If a company fails to meet the requirements, the exchange won’t allow the company to list with it in the first place; if the company is already listed on the exchange, the exchange may take action to remove the company from the exchange.

  • Corporate obligations: Publicly traded companies must meet the obligations of the exchange upon which they trade. These obligations include meeting filing deadlines for financial reporting and having a board of directors. They are also required to work with an investor relations firm or individual who answers shareholder questions and performs related tasks. (Investor relations representatives are very important to any penny stock investor.)

  • Visibility: A company should know what level of visibility it is trying to attain and the type of investors it wants to attract. If it wants to attract billions of dollars in investments from mutual funds, it needs to list on one of the major American stock exchanges. If it’s a Canadian penny stock, listing on the smaller and more relevant Toronto Venture Exchange may make more sense.

  • Appropriate peers: Certain types of companies gravitate to specific stock markets. For example, the NASDAQ (which stands for National Association of Securities Dealers Automated Quotations, a name nobody ever uses) houses the majority of technology companies, while the American Stock Exchange (AMEX) includes many resource corporations. Although these divisions aren’t obligatory, a company may find better results when listed with its peers.

Any penny stock needs to weigh the benefits of a stock market listing with the added costs and obligations. A smaller company may need much wider investor visibility but could have difficulty paying the fees or even being approved in the first place.

Fortunately, the sheer number and variety of exchanges usually means that a company can find an appropriate exchange to house its shares. In addition, as a company grows (or shrinks) it can leave one listing tier or stock market for another, to ensure that it strikes a good balance between requirements and benefits.

Many companies, especially volatile penny stocks, have difficulty maintaining their listing requirements. The result can be that they lose that listing, in which case they generally trade on another stock exchange with easier requirements.

For example, a company that can’t maintain the minimum share price for the NASDAQ may switch to the Over The Counter Bulletin Board (OTC-BB), which also happens to be owned by the same corporation. Before being delisted however, companies have a certain amount of time to meet the requirements and, therefore, maintain their listing.