Firms Ponder Will It Be NYSE Or Nasdaq

June 5, 2002
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GRAND RAPIDS — Companies preparing to launch on the stock market have several decisions to mull over, including the exchange on which they want to list their securities.

Years ago it used to be that the New York Stock Exchange (NYSE), commonly referred to as the “big board,” was the more visible index and the place for larger companies, said John Lawrence, vice president and branch manager for Salomon Smith Barney/Grand Rapids.

Most companies would start on the Nasdaq and graduate to the NYSE. But nowadays, there’s so much volume on both stock markets that it’s not urgent to be listed on one versus the other, although the exchanges themselves might tell you otherwise, Lawrence said.

Now small cap companies, those with less than $1 billion in capitalization, mingle on exchanges with large cap companies, those with market capitalization exceeding $15 billion.

The vast majority of companies going public are small rather than large. But if, say, Texaco were a private company going public today, which exchange would the company choose? It’s anybody’s guess, Lawrence said. There are no hard and fast rules.

Any stock that’s not traded on a formal exchange is considered to be “traded over the counter” (OTC). The OTC Bulletin Board, which is a regulated quotation service, displays real-time quotes, last-sale prices and volume information in over-the-counter equity securities.

When a stock is just over the counter and not listed on an exchange, it trades in the “pink sheets,” a trade-by-appointment type of transaction, explained Benjamin Smith III, chairman and CEO of Macatawa Bank in Holland.

As more people become interested in a stock and it gains in volume, then companies typically begin to list on one of the exchanges. Often, the first exchange a company will list on is the Nasdaq small cap, which is where one currently finds Macatawa Bank.

Each registered exchange has certain requirements that companies must comply with, and requirements get progressively more sophisticated at the lofty levels of the exchange hierarchy. The NYSE, for example, requires a higher level of assets and a higher number of shares outstanding.

The first issue a company must consider is that the Nasdaq is a computerized marketing quote system versus the NYSE, which is an actual brick-and-mortar location on Wall Street. NYSE is a visible entity, said William Johnson, vice president and branch manager of Prudential Securities in Grand Rapids.

It boils down to how a company wants to be perceived and the level of visibility or exposure it desires for its securities.

“If you’re a trader on the New York, there’s more prestige. You’re perceived to be a bigger company, have strong balance sheets and have more general interest from a public standpoint,” Smith said.

However, as Smith pointed, there are some very large, strong companies — Microsoft for example — that choose to list on the Nasdaq because they don’t see any great advantage to listing on the big board.

Listing on the NYSE sends the message that the company is “in the big leagues now,” whereas the Nasdaq is perceived as technology savvy. Some tech companies may choose to launch on Nasdaq simply because it’s heavy with tech stocks, Williams explained.

Cost plays into the decision as well. It’s significantly less expensive to list on the Chicago Stock Exchange, for example, than it is to list on NYSE. The exchanges at the top are more selective, they’re harder to get into and they have a higher listing fee, which is paid on a per-share basis.

Symbol availability is another factor, Williams noted. If the symbol company executives would like to have to represent their company is not available, they may look to another exchange that might not have used that one yet.

Liquidity features may also play into where a company decides to go. It’s “the float” factor; how much stock can the company float.

The essence of the stock market is the ability to create instant liquidity. If a company isn’t able to trade millions of shares a day it probably can’t trade the kind of volume required by the NYSE, so it looks elsewhere.

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