On September 19, 2014, the NYSE filed with the SEC proposed amendments to Section 102.01C of the NYSE Listed Company Manual to adopt a new initial listing financial standard for operating companies based on market cap and to eliminate all of the current initial listing financial standards for operating companies, with the exception of the NYSE earnings test, which looks at pre-tax earnings from continuing operations.
The new initial listing financial standard requires only that companies have a minimum total global market capitalization of $200 million at the time of initial listing. In the case of companies listing in connection with an IPO, the company’s underwriter will be required, as is currently the case, to provide a written representation that demonstrates the company’s ability to meet the global market cap requirement based upon the completion of the offering. Companies listing under this new global market capitalization test will also be required to meet the existing distribution requirements of Section 102.01A and the stock price and market value of publicly held shares requirements of Section 102.01B. For an IPO, an applicant would be required to have a stock price of at least $4 per share at the time of initial listing, at least 400 holders of round lots of its common stock, 1.1 million publicly held shares and at least $40 million in market value of publicly held shares at the time of initial listing. The NYSE is eliminating the Valuation/Revenue with Cash Flow Test, the Pure Valuation/Revenue Test, the Affiliated Company Test and the Assets and Equity Test because they all include global market cap requirements higher than $200 million.
The NYSE believes that, because it is setting its market cap requirement under the new standard at $200 million (more than twice the $75 million required by the comparable Nasdaq Global Market standard) and maintaining its other requirements, companies listing on the NYSE will still be of a size that is suitable for the NYSE and will “provide the depth and liquidity necessary to promote fair and orderly markets.” The NYSE expects to continue to “exercise informed discretion in listing companies under the proposed standard.”
The change is prompted by competition from NASDAQ. According to the NYSE, recently, there have been several large and successful IPOs by companies that were unable to satisfy the NYSE initial listing standards, typically companies primarily at the R&D-stage, not at the revenue-generating stage. These companies were, however, able to list on NASDAQ. With this change, the NYSE hopes to “address this competitive disadvantage.” Surprisingly, though, based on its assessment of IPOs conducted over the last few years, the NYSE does not anticipate a very large increase in the number of qualified IPOs as a consequence of the change. The proposed rule became effective upon filing with the SEC and will become operative 30 days after filing.