“Uplisting” is a global practice where companies, whether foreign or domestic, move their stocks from being quoted on alternative trading platforms like the OTC Markets, TSX, or ASX to major stock exchanges like the NASDAQ or NYSE. This transition is sought after by micro or small cap companies as it provides several advantages such as increased market visibility, improved credibility, and the ability to attract institutional investors.
However, company leaders should be cautious of potential pitfalls that could come with uplisting. While the excitement of surging stock prices may be enticing, it is important to note that being listed on a major exchange also exposes companies to increased scrutiny and higher regulatory requirements. Failure to meet these requirements can lead to delisting, which could have severe consequences for the company’s reputation and financial stability.
The Basics of Uplisting
Uplisting refers to the process where a company’s stock uplist from trading on an alternative stock exchange to a major one, such as moving from OTC Markets or a small international exchange to the Nasdaq or NYSE. This event is sometimes likened to a second initial public offering (“IPO”) because it opens up the company to a larger pool of potential investors and can lead to increased trading volume.
Uplisting to a higher-tier exchange is generally seen as a positive development for businesses as it provides opportunities for growth and expansion. A total of 9 companies which operate in 4 different sectors made up the 2023 Q1 class of uplisted companies.
However, the uplisting process does come with its challenges. Companies may face increased regulatory scrutiny and must meet strict listing rules set by the exchanges, such as the Nasdaq uplisting requirements and the Securities & Exchange Commission (“SEC”) guidelines. These rules often encompass criteria like minimum share price thresholds, financial performance standards, and corporate governance requirements.
The Reasons Why Companies Uplist
Companies have various motivations for uplisting their stocks to larger, official exchanges. Two real-life examples illustrate these reasons.
▲ Fubotv Inc. (NYSE: FUBO)
1. Fubotv Inc.
At the beginning of 2020, FuboTV’s shares were trading at $9.58. However, during the COVID-19 outbreak and the subsequent market crash, the company’s stock price dropped. As the market started to rebound, FuboTV’s stock gradually recovered, reaching $22 per share in May. To further enhance the company’s visibility and capitalize on the momentum of the broader market, FuboTV decided to uplist from the OTC to the NYSE in October 2020. The uplisting contributed to a significant increase in the stock price, aligning with FuboTV’s growth strategy and ambitions to differentiate itself from competitors and improve liquidity.
▲ Hertz Global Holdings Inc. (NASDAQ: HTZ)
2. Hertz Global Holdings Inc.
In the summer of 2021, Hertz officially emerged from bankruptcy, benefiting from increased demand for rental vehicles during the summer holidays and the return to domestic travel. The company’s stock on the OTC market surged nearly 600% in a year as investors hoped for an uplisting. Responding to its rapid success and to perpetuate further growth, Hertz uplisted its stock to the Nasdaq by summer 2021. By doing so, Hertz aimed to access a larger pool of investors, as it had outgrown the limitations of the OTC markets.
Risk Considerations for Uplisting Companies
Not all public companies are able to successfully uplist, and some may be forced to move to a different exchange involuntarily if they fail to meet financial or regulatory requirements. For major exchanges like the NYSE and Nasdaq, there is a minimum stock price that companies must maintain, and a business may face delisting if any of its stocks fall below $1 for 30 consecutive days. An example of this is Long Blockchain Corp., which had its shares delisted by US regulators after failing to file financial reports for an extended period.
The uplisting process can present challenges for businesses, including meeting new requirements such as minimum share prices, financial reporting deadlines, robust reporting practices, and governance standards. Failure to comply with these obligations can lead to delisting or legal disputes. Companies may also face pressure to consistently deliver positive results, meet growth targets, and satisfy the demands of investors. Like other public companies, those undergoing uplisting also face management liability, new exposures, and heightened public scrutiny.
To mitigate these risks, OTC Markets-listed companies considering uplisting should have directors and officers (D&O) insurance. This insurance is crucial as directors and officers can be sued by shareholders, competitors, or investors, putting their personal assets at risk. D&O insurance protects the company’s leadership from personal financial loss and lawsuits alleging wrongful acts or mismanagement of corporate assets.
Uplisting from OTC Markets to major exchanges like Nasdaq can offer numerous benefits, but the process can be complex and challenging. While some companies manage to uplist without external assistance, it can be costly and time-consuming. Thorough research and careful planning are essential before making the move to ensure the company is adequately prepared and aware of the coverage needed to navigate potential risks successfully.
Our Previous Successful Uplisting Case
