What Is a Listed Security?

A listed security is a financial instrument that is traded through an exchange, such as the New York Stock Exchange (NYSE) or Nasdaq. A listed security may be a stock, bond, or a derivative. These listed securities can be bought and sold on the open market. Private companies that go public must choose an exchange where they plan to be listed and meet its listing requirements. Companies that issue stock launch their listing through an initial public offering (IPO).

Understanding Listed Securities

As noted above, a listed security is any financial instrument that can be bought and sold on an exchange. Listed securities may be bonds or stocks. They may also be more complex assets, such as derivatives. These securities are vital as they provide much-needed liquidity to the financial markets. They also help connect buyers and sellers.

There are several steps and requirements that issuers need to meet before they can list their securities on an exchange like the NYSE or the Nasdaq. The following are the general steps they must take:

1. Choose an exchange where they wish to be traded
2. Hiring advisors and key personnel to facilitate a listing
3. Prepare documentation, including financial statements and reports
4. Register with the regulator (the Securities and Exchange Commission (SEC) in the United States)
5. Meet the listing requirements
6. Set up an IPO

After the IPO is complete, trading begins on the secondary market. Companies that are listed must follow through with regular filings and continue to meet the exchange's financial requirements. If the company fails to comply with these conditions, its security will be delisted. Delisted securities that can no longer be traded on an exchange may trade over the counter. The over-the-counter (OTC) market does not have listing requirements.

Types of Listed Securities

Stocks

Stocks are among the most common listed securities. Companies that want to list their shares must go through the IPO process, which means selling shares on the primary market. This process involves creating a plan to go public, completing all the necessary paperwork, and hiring an underwriter to oversee the process.

Once the IPO is completed, trading can begin on the secondary market. While an IPO is reserved for institutional investors, the secondary market is where investors and traders buy and sell their shares. This arena not only allows small investors to participate in the financial market, but it also gives the market liquidity.

Bonds

Bonds are debt securities. Companies that issue bonds essentially borrow money from the investor. The investor buys a bond for the face value (the principal amount). In exchange, they receive their principal investment and interest at regular intervals and/or at maturity.

Bonds are issued by governments and corporations. They allow issuers to raise money for different reasons, including funding new purchases or growing their business. Since they are loans, the issuers must repay their investors (also known as bondholders and creditors) regardless of whether they earn a profit.

Derivatives

A derivative is a complex financial security. It is financial contract that is traded over an exchange. The value of the contract is dependent on the value of the underlying asset, which can include commodities, currencies, options, or futures. Contracts are agreed-upon by two parties—the buyer and seller.

Requirements to Become a Listed Security

The exchange a company chooses can affect how investors perceive the stock. Some companies choose to cross-list their securities on more than one exchange. We've listed some of the basics of listing a security on the NYSE and the Nasdaq below. Keep in mind that listing requirements for other exchanges may differ.

On the New York Stock Exchange (NYSE)

Companies that want to be listed on the NYSE must go through several steps:

• Step 1: Choose a market. The pool includes the NYSE, the NYSE American, and the NYSE Arca.
• Step 2: Select a ticker symbol.
• Step 3: Apply to the exchange. This includes meeting certain requirements, such as paying listing fees, meeting minimum market capitalization thresholds, and shareholder lots among other things.
• Step 4: Pick a designated market maker (DMM), which acts as the primary maker for the security.

If a new listing is an IPO, the NYSE requires a guarantee from the IPO underwriter that the IPO will meet the board's standards.

On the Nasdaq

The listing process can take anywhere from four to six weeks. Companies that want to list their securities must:

• Reserve their ticker symbol
• Submit an application
• Complete a listing agreement
• Provide a governance certification
• Pay the fee
• Fill out the logo submission form

These steps can be done on paper or electronically online.

Just like the NYSE, issuers must meet the requirements of the financial market to which they apply. For instance, the requirements vary between the Nasdaq Global Select Market, the Global Select Market, the Nasdaq Global Market, and the Nasdaq Capital Market. These conditions include market cap, market value, market makers, and total assets among others.

The Bottom Line

Listed securities are any financial instruments that are publicly traded on an exchange. This includes the stocks and bonds you buy and sell, as well as derivatives that experienced traders and investment companies trade. The path to becoming listed takes time and preparation. Issuers must file paperwork, hire personnel, and take other steps so they can begin trading. Companies must also choose and reserve a ticker symbol. It is an important part of their branding and can help investors identify them in the financial markets.