How Does a Stock Move From OTC to a Major

Exchange?
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By 
KEN CLARK
 
 
Updated Apr 12, 2021
Over-the-counter markets can be used to trade stocks, bonds, currencies,
and commodities. This is a decentralized market that has, unlike a standard
exchange, no physical location. That's why it's also referred to as off-exchange
trading. There are many reasons why a company may trade OTC, but it's not an
option that provides much exposure or even a lot of liquidity. Trading on an
exchange, though, does. But is there a way for companies to move from one to
the other?

Read on to find out more about the difference between these two markets, and
how companies can move from being traded over-the-counter to a standard
exchange.

KEY TAKEAWAYS

 Over-the-counter securities are not listed on an exchange, but trade

through a broker-dealer network.
 Companies can jump from the OTC market to a standard exchange as
long as they meet listing and regulatory requirements, which vary by
exchange.
 Exchanges must approve a company's application to list, which should be
accompanied by financial statements.
 Some companies choose to move to get the visibility and liquidity provided
by a stock exchange.
OTC vs. Major Exchange: An Overview
Over-the-counter (OTC) securities are those that are not listed on an exchange
like the New York Stock Exchange (NYSE) or Nasdaq. Instead of trading on a
centralized network, these stocks trade through a broker-dealer network.
Securities trade OTC is because they don't meet the financial or listing
requirements to list on a market exchange. They are also low-priced and are
thinly traded.

OTC securities trading takes place in a few different ways. Traders can place buy
and sell orders through the Over-the-Counter Bulletin Board (OTCBB), an
electronic service offered by the Financial Industry Regulatory
Authority (FINRA).1  There is also the OTC Markets Group—the largest operator
of over-the-counter trading—which has eclipsed the OTCBB. Pink Sheets is
another listing service for OTC penny stocks that normally trade below $5 per
share.

Securities listed on major stock exchanges, on the other hand, are highly traded
and priced higher than those that trade OTC. Being able to list and trade on an
exchange gives companies exposure and visibility in the market. In order to list,
they must meet financial and listing requirements, which vary by exchange. For
instance, many exchanges require companies to have a minimum number of
publicly-held shares held at a specific value. They also require companies to file
financial disclosures and other paperwork before they can begin listing.

Mechanics of Moving
It isn't impossible for a company that trades OTC to make the leap to a major
exchange. But, as noted above, there are several steps it must take before they
can list.

 
Companies looking to move from the over-the-counter market to a standard
exchange must meet certain financial and regulatory requirements.

The company and its stock must meet listing requirements for its price per share,
total value, corporate profits, daily or monthly trading volume, revenues, and SEC
reporting requirements. For example, the NYSE requires newly listed companies
to have 1.1 million publicly held shares held by a minimum of 2,200 shareholders
with a collective market value of at least $100 million.2  Companies that want to
list on the Nasdaq, on the other hand, are required to have 1.25 million public
shares held by at least 550 shareholders with a collective market value of $45
million.3

Second, it must be approved for listing by an organized exchange by filling out an

application and providing various financial statements verifying that it meets its
standards. If accepted, the organization typically has to provide written notice to
its previous exchange indicating its intention to voluntarily delist. The exchange
may require the company to issue a press release notifying shareholders about
this decision.
While a lot of fanfare may occur when a stock is newly listed on an exchange—
especially on the NYSE—there isn't a new initial public offering (IPO). Instead,
the stock simply goes from being traded through the OTC market to being traded
on the exchange.

Depending on the circumstances, the stock symbol may change. A stock that

moves from the OTC to Nasdaq often keeps its symbol—both allowing up to five
letters. A stock that moves to the NYSE often must change its symbol, due to
NYSE regulations that limit stock symbols to three letters.

Why Switch Stock Exchanges?

There are a variety of reasons why a company may want to transfer to a bigger,
official exchange. Given its size, companies that meet the requirements of the
NYSE occasionally move their stock there for increased visibility and liquidity. A
company listed on several exchanges around the world may choose to delist
from one or more in order to curb costs and focus on its biggest investors. In
some cases, firms have to involuntarily move to a different exchange when they
no longer meet the financial or regulatory requirements of their current exchange.

A Dow-Inspired Departure
Although the NYSE may seem like the pinnacle for a publicly-traded company, it
may make sense for a company to switch exchanges. For example, Kraft Foods,
once one of the 30 companies in the Dow Jones Industrial Average, voluntarily
left the NYSE for the Nasdaq, becoming the first DJIA company ever to do so. At
the time of the move, Kraft was planning to separate into two companies. That
decision, coupled with the Nasdaq's significantly lower fees, prompted the
switch. 

For most companies, however, the marriage to an exchange tends to be a

lifetime relationship. Relatively few companies voluntarily jump from one
exchange to another. Charles Schwab is an example of a company moving back
and forth between the NYSE and the Nasdaq.4

Delisting
Delisting occurs when a listed security is removed from a standard exchange.
This process can be both voluntary or involuntary. A company may decide its
financial goals aren't being met and may delist on its own. Companies that cross-
list may also choose to delist their stock from one exchange while remaining on
another.

Involuntary delistings are generally due to a company's failing financial health.

But there are other reasons why a stock may be forced to delist. If a company
shuts down, goes through bankruptcy, merges or is acquired by another
company, goes private, or fails to meet regulatory requirements, it may be
required to delist involuntarily. Exchanges will normally send a warning to the
company before any