What is a listed security?

A financial instrument that is traded on an exchange is known as a listed security. When a private company wishes to issue shares and go public, then they have to choose an exchange on which they want to be listed such as Nasdaq and NYSE.

 

Summary

• A financial instrument that is traded on an exchange is known as a listed security.
• When a private company wishes to issue shares and go public, then they must choose an exchange on which they want to be listed.
• The requirements for listing can vary from exchange to exchange and include minimum share prices, minimum stakeholder’s equity and several shareholder limitations as well.
• The requirements of the exchange ensure that high-quality securities are listed on the exchange. It further ensures that the exchange upholds its reputation amongst the investors.

Frequently Asked Questions (FAQs)

How to gain listing on a chosen exchange?

To gain the listing on the chosen exchange, the private company must pay to fulfil the requirements and make fee payment which includes entry fee and yearly fee for listing. The requirements for listing can vary from exchange to exchange and include minimum share prices, minimum stakeholder’s equity and several shareholder limitations as well. The requirements of the exchange ensure that high-quality securities are listed on the exchange. It further ensures that the exchange upholds its reputation amongst the investors.

In the United States, getting listed on the NYSE is more expensive in comparison to getting listed on the Nasdaq. Therefore, the new companies opt for becoming listed on Nasdaq after they meet all the requirements. The choice of the company in the context of the exchange affects the perspective of the investors towards the stocks. Few companies can cross-list themselves by becoming listed on more than one exchange.

In case the stock is not able to comply with the requirement of the exchange, it will be delisted. The delisted securities are not traded on the exchange but can be traded in the OTC (over the counter) market. The OTC market does not have any listing requirements.

What is the difference between listed and unlisted securities?

Listed securities – The financial assets which are traded through exchanges such as the NYSE or Nasdaq are known as the listed securities. When a private company desires to issue shares and go public, then they must choose an exchange on which they want to be listed. To gain the listing on the chosen exchange, the private company is required to pay to fulfil the requirements and make fee payment which includes entry fee and yearly fee for listing.

Unlisted securities – Unlisted securities are those financial assets that are not traded through the exchange but are traded in the over-the-counter (OTC) market. The unlisted securities are also known as the OTC securities. The trade in the OTC market is facilitated by the market makers. The securities are less liquid in comparison to the listed securities.

What is the objective of listing the securities?

The listing of the securities ensures the following–

• The listing provides liquidity and marketability of the securities.
• The listing extends free negotiability to securities.
• The listing protects the interest of both investors and shareholders.
• The listing provides the mechanism for supervision and control of the trading activities.

What are the requirements for listing security?

A company that aims to gain a listing at a stock exchange must fulfil the following requirements:

• The permission to list should be provided in the Articles and Memorandum of Association.
• The company must have issued 49% of the share capital for public subscriptions.
• The prospectus must contain the information regarding the receipt of the share applications, the opening of the subscription list and so on.
• The allotment of the shares must be conducted in a reasonable and fair manner. In case of oversubscription, the company needs to decide the basis of allotment in consultation with the chosen exchange.
• For getting listed, the company needs to enter into a listing agreement with the exchange. The terms and conditions regarding the listing are mentioned in the agreement. The disclosure related information is also included in the agreement.

The company may also choose to undergo an IPO to make itself public.

What are the minimum public offer requirements?

The company that wishes to be listed needs to offer at least 60% of its issued capital for public subscriptions. Eleven per cent out of sixty per cent might be reserved for the central or state government, public financial institutions, and their investment agencies by the exchange.

The public offer needs to be made through a newspaper advertisement or through a prospectus. The company can choose to issue the remaining to their associates or keeping it to themselves.

What is a fair allotment?

The shares should be allotted in a transparent and fair manner. In case of oversubscription, the company must consult the proposed stock exchange to allot the shares in an equitable manner.

When the company is listed in multiple exchanges then the company will consult that exchange which is located in the company’s registered office location.

What is the procedure of listing?

A private company needs to follow the following steps for listing the securities on the stock exchange –

• To begin with, the company must choose the exchange or stock exchange on which they want to list themselves.
• The company should establish contact with the authorities of the chosen exchange.
• The stock exchange authorities will inform all the requirements and the eligibility requirements for becoming listed.
• The proposed Articles of association, memorandum of association and prospectus need to be submitted with the exchange for their examination.
• Afterwards, the company must finalize the Articles, Memorandum and Prospectus.
• After that, the securities are allotted and issued.
• By submitting the required documents, particulars and paying the fees, the company enters into an agreement with the exchange.
• Lastly, the share will be made available on the exchange for the purpose of trading.