How Does a Stock Transition From OTC to Nasdaq?

Stocks trading on the over-the-counter (OTC) market often have limited visibility, lower liquidity, and fewer regulatory requirements compared to those listed on major exchanges like Nasdaq. Moving from OTC to Nasdaq can provide greater access to investors, improved credibility, and potentially higher stock valuations. However, this transition requires meeting specific exchange standards.

Successfully uplisting involves financial benchmarks, governance standards, and ongoing compliance obligations.

Listing Criteria

A company moving from the OTC market to Nasdaq must meet financial and liquidity requirements, which vary by market tier. Nasdaq has three tiers: the Capital Market, Global Market, and Global Select Market, each with progressively stricter standards. The Capital Market is the most accessible for smaller companies, while the Global Select Market has the highest financial and corporate size thresholds.

To qualify for the Capital Market, a company must meet one of three financial standards:

– Equity Standard: At least $5 million in stockholders’ equity, a minimum bid price of $4 per share, and at least 1 million publicly held shares.
– Market Value of Listed Securities Standard: A market value of at least $50 million.
– Net Income Standard: At least $750,000 in net income from continuing operations over the past two years.

Beyond financial metrics, a company must demonstrate sufficient liquidity and investor interest. Nasdaq requires at least 300 round lot shareholders—investors holding at least 100 shares each—and a minimum of three market makers to ensure active trading. The company must also maintain an average daily trading volume that indicates sustained investor engagement.

Corporate Governance Requirements

Companies uplisting to Nasdaq must adhere to governance standards designed to protect investors and ensure transparency. These cover board composition, audit oversight, executive accountability, and shareholder rights.

A Nasdaq-listed company must have a board with a majority of independent members—directors without material financial ties to the company. This structure helps prevent conflicts of interest and ensures decisions prioritize shareholder value. Audit, compensation, and nominating committees must consist entirely of independent directors to reinforce unbiased oversight.

Audit committees play a key role in financial oversight. Each member must meet Nasdaq’s independence criteria, and at least one must qualify as a financial expert under SEC guidelines. The committee is responsible for hiring and overseeing external auditors, who must be registered with the Public Company Accounting Oversight Board (PCAOB).

Nasdaq requires companies to hold an annual shareholder meeting and provide voting rights on significant corporate matters, such as mergers or capital structure changes. Equity compensation plans, including stock option grants to executives and directors, must receive shareholder approval to prevent excessive dilution of ownership.

Ongoing Compliance After Listing

Once listed, a company must maintain compliance with Nasdaq’s ongoing requirements to avoid penalties or delisting. One key obligation is the minimum bid price rule, which requires a stock to stay above $1 per share. If a stock falls below this threshold for 30 consecutive trading days, Nasdaq issues a deficiency notice, granting 180 calendar days to regain compliance. If the issue persists, the company may qualify for an additional 180-day grace period by transferring to the Capital Market and implementing corrective measures, such as a reverse stock split.

Nasdaq also requires timely financial reporting with the SEC, including quarterly (10-Q) and annual (10-K) filings. These reports must follow Generally Accepted Accounting Principles (GAAP) and be audited by a PCAOB-registered firm. Late filings can trigger compliance warnings, leading to trading suspensions if not promptly resolved. Companies must also disclose material events through Form 8-K filings, such as mergers, executive changes, or significant financial developments.

Market capitalization and public float requirements vary by market tier. A company on the Global Market, for example, must maintain at least 1.1 million publicly held shares and a public float market value above $5 million. Falling below these thresholds can initiate a compliance review requiring corrective actions to maintain listing status.