Best Stock Exchanges For Going Public

When it went public on Nov. 10, 2021, the electric vehicle (EV) maker Rivian raised nearly $12 billion — the biggest haul for a U.S. firm since Facebook brought in $16 billion in 2012. 

That also happened to be a banner year for companies launching Initial Public Offerings (IPOs), with over a thousand filings that year. While those transactions cooled off considerably in 2022 to a mere 181 (per Statista), there's no reason to give up your IPO dreams.

The U.S. Securities and Exchange Commission (SEC) is careful to lay out the reasons for issuing an IPO, such as raising money to fund your company's growth, and for not doing so, such as the cost and time involved. You can read more about those reasons for and against on the SEC website. 

With help from advisers including Goldman Sachs, JPMorgan Chase & Co., and others, Rivian opted to seek financing via the IPO route to fuel future growth and fund continued research and development as well as pay for assembly plants.

Some companies decide to stay private after weighing all the costs — not to mention all the increased regulation and disclosure requirements — of being a publicly traded company. 

In Rivian's case, it took the company several years to raise any significant amount of capital.  And even after gaining  hundreds of millions of dollars from investors, it took funding from Ford, Amazon, and others in order to raise nearly $10.5 billion ahead of its much-publicized IPO, according to PitchBook data.

Rivian stock trades on the Nasdaq, the first all-electronic trading exchange. But in terms of connecting companies with investors, there are several options including the New York Stock Exchange (NYSE) which is the largest equities exchange and has been at the center of global capital markets for more than 225 years. 

Rivian's choice of Nasdaq, though perhaps less prestigious than NYSE, may have been driven by the exchange's lower listing fees. 

While each exchange has differences, they all are ways to connect stock buyers and sellers. Below, find a brief overview of each exchange so you can choose the best option for you.

NYSE

The New York Stock Exchange still uses the auction system of stock trading in which buyers and sellers put in competitive bids and offers simultaneously. In an auction exchange, the current stock price is the highest price a buyer is willing to spend on a company's stock, while the lowest price is what the seller will accept. Per Investopedia, trades are then matched, and when paired together, the order is executed. Brokers and traders, some of whom are "specialists" in a particular market segment, communicate on the trading floor (also known as the pit) to buy and sell securities. Perhaps you've seen photos of them working feverishly in "the pit."

Companies listed on the NYSE have great credibility because they have to meet initial listing requirements and comply with annual maintenance requirements such as a stock price above $4 per share. You can find listing standards as well forms and applications on the NYSE website.

The NYSE website is keen to point out that there are many ways to get your company listed on the public market besides the IPO. These include a direct floor listing, which allows a foreign company that already has a listing in its home market to gain status as a U.S. company, and the formation of a Special Purpose Acquisition Company, a way to raise money through an IPO and use those funds to acquire a business.

Nasdaq 

The Nasdaq — an acronym for its original name, the National Association of Securities Dealers Automated Quotations, — boasts more than 4,000 company listings and says it has transformed financial markets as the world's first electronic stock market. Unlike the NYSE, buyers and sellers on the Nasdaq are only connected by computers, which offers investors much faster execution on trades. 

"The exchange has listing and governance requirements similar to the NYSE," says Investopedia.  "For example, a stock must maintain a $4 minimum price. If a company does not maintain these requirements, it can be delisted to an over-the-counter (OTC) market. For example, on the New York Stock Exchange (NYSE), if a security's price closed below $1.00 for 30 consecutive trading days, that exchange would initiate the delisting process." But one obvious difference between the 2 exchanges, NASDAQ offers much lower IPO and annual listings fees than the NYSE. (See chart below.)

Under the banner of "Whatever Happened To...?"

Remember the AMEX? It's still there but through a series of "marriages" it is now known as NYSE American, an electronic exchange that deals mainly in small and mid-cap stocks. With roots dating back to 1908, NYSE American now shares the same owner as the NYSE (NYSE Euronext).

Global Exchanges

While the NYSE and Nasdaq are the most widely tracked of the exchanges, there are many others around the world. Euronext is Europe's largest stock exchange, and the London Stock Exchange is the second largest of the global exchanges. Often reported on business radio or TV is the "Footsie" (or FTSE, the Financial Times Stock Exchange), a popular index within the London Stock Exchange. Mainland China’s largest exchange is the Shanghai Stock Exchange. There are also a number of exchanges that deal strictly in various digital currencies. 

Over-The-Counter (OTC)

Some companies, especially smaller ones, opt to bypass exchanges in favor of over-the-counter trading. According to the investor journal The Motley Fool, several larger companies have switched to OTC markets to avoid the administrative burden and costly fees that accompany regulatory oversight laws. 

There are several flavors of OTC trading: Best Market (OTCQX), which is generally foreign companies that list on major exchanges abroad, Venture Market (OTCQB), which is mostly developing companies, and Pink Sheets, a listing service that doesn't require companies to register with the SEC.

Which of these exchanges make the most sense for your company?

To recap, here’s a quick overview of the Nasdaq and the NYSE: 

Nasdaq 

• 4,000+ company listings 
• Electronic trading
• Listing requires a Market Cap/Liquidity of 1.25 million publicly-traded shares with a collective market value of $45 million
• Minimum security listing price: $4 per share
• Annual listing fee: $47,000
• IPO listing fee: $150,000

NYSE

• World's largest equities exchange
• Specialists buy and sell stock
• Listing requires a Market Cap/Liquidity of: 1.1 million publicly-traded shares with a collective market value of at least $40 million
• Minimum security listing price: $4 per share.
• Annual listing fee: $71,000
• IPO listing fee: $295,000

Comparing regulatory requirements that your company will have to meet as a public entity with your current organizational structure is one way to determine if the exchange is a good fit for you. The difference in fees is another obvious consideration. And finally, the market perception of the exchange may factor into your decision. For example, some consider the NYSE as “an exchange for older, more established companies,” while NASDAQ tends to have newer, technology focused companies.

Another important point to consider: Location, location, location. 

According to Martin Steinbach, a European partner at Ernst & Young, more than 90% of issuers list on their domestic stock exchanges.

"A company’s home market is often regarded as the country in which it is incorporated," he writes. "This is where companies usually go public, and it is here that investors tend to expect the listing. A company is intimately linked to the economy, culture, infrastructure, technology base and taxes of its home country. It is also committed to the relevant capital market regulations."

ManagementStudyGuide.com, an online educational portal, also highlights the importance of meeting investors where they are in terms of their preference to trade in securities in their home countries. 

But they also note several other factors worth considering in selecting the optimal exchange such as each country’s accounting standards, which can potentially impact a company's profitability, as can listing and compliance costs that vary by exchange. 

"Some companies want to keep their shareholding closely held," according to an article on ManagementStudy.com. "This is the reason they ensure that the number of shareholders does not increase too much. If a company has fewer than 300 shareholders, then it won’t be allowed to list on either the NYSE or on the NASDAQ. In such cases, the companies can choose to list on one of the several Over the Counter exchanges that are present in the world. These exchanges are not regulated. Hence, only accredited investors or high net worth individuals are allowed to participate in such investments."

Locking in one exchange over another is not the end all. Some companies that can afford to, will trade on more than one exchange. Listing on one exchange just means that the company first chose to sell their shares on that exchange. Over a period of time, the shares of big companies are usually sold at all exchanges at almost the same price, says The Motley Fool. 

If the IPO route is out of reach for your company, an alternative is to go public through a reverse merger with a public shell. On Dealstream you'll find companies (public shells) for sale that have already been posted on the public market.  Check it out here.