Listing requirements are the criteria set by different stock exchanges that must be met before a company can become a member of that exchange. Until membership is granted, that company is not able to trade its stock options in that particular marketplace. Many of the qualifications that compose listing requirements are put in place to ensure that all members are in compliance with any governmental regulations that may apply to doing business in that nation.
It is important to note that while there are several list requirements held in common by most exchanges, there is always the possibility that a company can qualify for membership in one market, but not yet meet the criteria set by another market. This is actually to the benefit of everyone involved. Investors who are trading on the exchange are protected from purchasing shares of stock that do not have at least minimum backing by the issuer. Rejecting applicants who do not meet the listing requirements also helps to prevent other companies trading on the exchange from seeing a decrease in the value of their stocks, due to the diminishing reputation of a market that allows just about anyone to participate.
Many different qualifications may go into the development of listing requirements for a given exchange. Most have to do with the applicant meeting the standards of governmental regulatory agencies. Others are focused on the amount of liquidity the issuing company currently possesses in terms of shares issued and the size of the business as determined by its annual income or the degree of market share the business already commands.
For companies that seek membership in one or more exchanges, the main benefit is the opportunity to attract a wider range of potential investors. While there are exceptions, many investors are leery of dealing with companies that are not actively traded on major exchanges. By being allowed to trade on a given stock exchange, the company sends a clear message that is meets the listing requirements for that exchange, and is worthy of consideration on the part of investors.
No company that does eventually meeting the listing requirements put in place by a given exchange has earned a permanent position within the membership. Should a member company fail to continue compliance with those requirements, the company is likely to experience what is known as delisting. This simply means that membership is revoked and cannot be reinstated until the company demonstrates that it is once more in compliance with the exchange’s standards.