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How Uplisting Stocks Works: From OTC to Nasdaq or NYSE


Key Takeaways

The process of uplisting stocks has become increasingly prevalent in recent years, with more established companies aiming to gain the advantages of trading on higher-tier exchanges, like the Nasdaq or New York Stock Exchange (NYSE). That’s because these transitions bring organizations increased market visibility, improved credibility, and the opportunity to engage with institutional investors on a larger scale. However, the excitement of surging stock prices may be short-lived; companies can quickly fall from fame and be delisted as quickly as they were uplisted. So, what should company leaders watch out for, and what’s the catch?

The Basics of Uplisting Stocks

A company’s uplisting event is sometimes referred to as a second initial public offering (IPO). But really, it is when a stock upgrades from an alternative stock exchange to a major one. For example, a stock may move from the over-the-counter (OTC) markets — broker-dealer networks that allow people to trade stocks directly — or a small international exchange to the Nasdaq or NYSE.

Uplisting to a higher-tier exchange is typically a positive development for businesses, as they can attract a larger pool of investors and potentially benefit from increased trading volume. A total of 17 companies operating in 8 different sectors uplisted in Q2 of 2022 — and many more businesses are raring to go.

However, this doesn’t come without challenges: Businesses may face increased regulatory scrutiny, heightened investor expectations, and increased competition. For the process to begin, a company’s stock must comply with exchanges’ listing rules, like Nasdaq uplisting requirements and the Securities & Exchange Commission (SEC). These requirements may include minimum share price thresholds, financial performance criteria, and corporate governance standards.

Reasons Companies Uplist Stocks

A company may transfer to a larger, official exchange for many reasons. For example, Enterprises that meet the NYSE requirements cite moving their stock there for increased visibility and liquidity. Plus, the OTC markets have a lower trading volume than standard exchanges, making their stocks more volatile.

Take one real-life example: FuboTV, an American streaming video business. At the beginning of 2020, FuboTV had shares trading at $9.58. When the market crashed during the COVID-19 outbreak, FuboTV shares dropped. Then, they started to rebound, and the stocks reached $22 per share in May. Therefore, to increase the company’s visibility and regain the momentum of the broader market, FuboTV uplisted from the OTC to the NYSE in October 2020, and the stock skyrocketed. So, uplisting aligned with FuboTV’s growth strategy and ambitions to differentiate itself from competitors and improve liquidity.

Another example is Hertz, a car rental company. In the summer of 2021, the company officially exited bankruptcy after leveraging summer holiday demand for rental vehicles and the return to domestic travel. Such quick success was unheard of, and investors flocked to the OTC stock, hoping to see an uplisting. The OTC stock swelled nearly 600% in a year. So, by summer 2021, Hertz had uplisted its stock to the Nasdaq. Hertz had outgrown the OTC markets and wanted to perpetuate further growth by having access to a larger pool of investors.

Uplisting From OTC to Nasdaq

So, what happens when a company moves from OTC to Nasdaq? It takes around four to six weeks to process a company’s uplisting application, which includes a listing agreement, a $25,000 application fee and corporate governance certification, among other requirements.

Nasdaq Uplisting Requirements

Also, the Nasdaq exchange doesn’t allow any company to trade on its exchange without fulfilling the minimum criteria:

  1. 1,250,000 publicly traded shares outstanding on the listing, without including shares held by the directors or officers of the company
  2. Company’s stock listed at a price of at least $4.00 a share
  3. At least 100 shares and 550 shareholders
  4. Cash flow of at least $27.5 million in the last three fiscal years
  5. Aggregate pre-tax earnings in the prior three years of at least $11 million or pre-tax earnings in the previous two years of at least $2.2 million


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NYSE Uplisting Requirements

On the other hand, NYSE requires newly listed companies to have 1.1 million publicly held shares, a minimum of 2,200 shareholders, a solid board of directors, and a collective market value of at least $100 million.

NYSE and Nasdaq require the companies to follow corporate governance standards and may require an Independent Compensation Committee, for example. Also, the listing fees range from $125,000 to $295,000.

It is important to note that some companies can list on an exchange organically without the need to complete a simultaneous underwritten public offering. In contrast, other companies partner with an investment banker to achieve the uplist.

Risk Considerations for Uplisting Companies

Not all public companies successfully uplist: Sometimes firms have to involuntarily move to a different exchange if they can’t meet financial or regulatory requirements. For NYSE and Nasdaq, there is a minimum stock price: A business may be delisted if any stocks fall below $1 for 30 consecutive days. For example, Long Blockchain Corp., the poster child of crypto-investment excesses, had its shares delisted by US regulators after failing to file financial reports for years.

Businesses may face challenges meeting new requirements, like minimum share prices, financial reporting deadlines, robust reporting practices, or governance standards. Failure to comply with these reporting obligations could result in delisting or even legal disputes. Companies may also face pressure to deliver consistent results, meet growth targets, and satisfy the demands of investors. But at the end of the day, organizations uplisting face the same risks as other public companies: management liability, new exposures, and public scrutiny.

As a result, OTC-listed companies considering uplisting must have directors and officers (D&O) insurance. This insurance is non-negotiable. Shareholders, competitors, and investors can sue an organization’s directors and officers, putting personal assets at stake. But D&O insurance safeguards a company’s leadership from personal financial loss and lawsuits alleging leaders of wrongful acts or inefficient management of corporate assets.

Uplisting from OTC to Nasdaq, for example, can provide numerous benefits. But the road to transition can be nuanced and potholed. While many companies successfully uplist without seeking help, the process can be expensive and lengthy. It is critical to do adequate research and planning before making a move so you are well-versed about what coverage your company needs and understand how to file for an IPO.

At Founder Shield, we specialize in knowing the risks your industry faces as you uplist to ensure you have adequate protection. Feel free to reach out to us, and we’ll walk you through the process of finding the right policy.


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