Why Companies Change Exchanges

In global finance, where billions of dollars change hands with a few clicks of a button, a company's choice of stock exchange affects its visibility, prestige, and access to capital. For many decades, being listed with the New York Stock Exchange (NYSE), now owned by the Intercontinental Exchange (ICE), was synonymous with being a blue-chip, leading company, and its reputation continues to draw companies worldwide. However, even the NYSE sees firms leave for other exchanges.

Some companies may list their initial public offering (IPO) with the Nasdaq (NDAQ) or NYSE, only later to question whether their listing still aligns with their strategic goals. In this ever-evolving landscape, why would a company leave an exchange and seek a new home for its shares? Why is this often done involuntarily for the company involved? As we explore the reasons behind these critical decisions, we'll explain what drives companies to switch exchanges and the potential benefits and drawbacks of such moves.

Stock Exchange Requirements

Often, when a company switches exchanges, it's less an action than a reaction. Companies don't choose to leave as much as they're asked to do so. Look at the NYSE. Its requirements for joining remain as stringent as ever.

New entrants to the NYSE (or companies spun off from larger, existing companies) need to undergo an IPO in which the market value of publicly held shares is at least $40 million with the equivalent of 1.1 million publicly held shares.

Once a company qualifies, that doesn't mean anything in and of itself. The NYSE goes to great lengths to remind everyone that meeting all its criteria is a necessary, but not sufficient, condition for listing. Companies that fail to satisfy the requirements of the exchange they're listed at risk getting booted off of it.

Failing to meet requirements is not the only reason a company may switch exchanges. Changes occur following a merger and aren't always involuntary. Sometimes, companies may view another exchange as a better fit. Stock exchange requirements can play a role in arriving at this conclusion. Another influential factor is profile. On some exchanges, there is more liquidity, a wider pool of investors, and greater media attention.

As of January 2024, 2,228 companies traded on the NYSE, and 3,433 traded on the Nasdaq.

Changing Exchanges

However, moving from the NYSE to another exchange isn't necessarily a step-down. Sometimes, it makes prudent business sense. Here are reasons a company might voluntarily move to another exchange:

• Cost: Listing fees and ongoing compliance costs vary between exchanges. A company may switch to an exchange that offers more cost-effective options without compromising on visibility and liquidity.
• Growing the investor base: Switching to a more prominent exchange can provide access to a broader pool of investors, including institutional investors, which can enhance the company's visibility and potentially increase demand for its shares.
• More liquidity: A larger exchange often offers higher trading volumes, which can improve a stock's liquidity, making it easier for shareholders to buy and sell without significantly affecting the stock price.
• Prestige and investor credibility: Listing on a well-respected exchange can enhance a company's reputation and increase trust among investors, customers, and partners, which can be particularly beneficial for smaller or international companies establishing themselves in a new market.
• Regulatory environment: Companies might want an exchange with regulations that better align with their business operations, governance standards, and reporting requirements.
  
• Strategic alliances: A move to a new exchange might be part of a broader strategic alliance or partnership that provides the company with new opportunities for growth and expansion.
  

Examples of Companies That Have Switched Exchanges

Kraft Foods, now Kraft Heinz (KHC), up until early 2012 was not merely an NYSE member but had spent the previous three years as one of the 30 component firms in the Dow Jones industrial average (DJIA), which had long been the bellwether of the market. It was removed from the DJIA that year.

At the time, Kraft had been profitable for years and showed no signs of slowing down. So where was there to go from the NYSE?

Nasdaq was once a brash upstart exchange. The first to process transactions electronically, it has now taken its place as at least the NYSE's equal. The largest and most profitable companies, Microsoft and Apple, trade on the Nasdaq. From 2018 to year-end 2023, the Nasdaq also outpaced the NYSE in IPOs.

Kraft went uptown (the Nasdaq is located off New York's Times Square) for several reasons, but primarily because of the effect it had on the company's bottom line. Kraft had already announced that it was ready to separate into two companies: one concentrating on North American grocery brands, the other on snack foods sold worldwide.

It was easier for both Kraft's successor company and its designated spinoff to be listed on Nasdaq. In addition, Nasdaq's listing fees are smaller than those of the NYSE. The few tens of thousands of dollars Kraft would save on said fees weren't necessarily enough to warrant a switch, but coupled with Nasdaq's promotion and brand building, they were.

Kraft isn't the only company that has made the switch to Nasdaq. In recent years, Nasdaq, with its slightly less stringent requirements and reputation for innovative tech stocks, has welcomed a lot of companies from the NYSE. Examples include PepsiCo (PEP), Walgreens Boots Alliance (WBA), Exelon (EXC), Workday(WDAY), Keurig Dr. Pepper(KDP), and DoorDash(DASH).

The reasons for these changes depend on the company. PepsiCo said the switch would "provide us with greater cost-effectiveness and access to Nasdaq's unique portfolio of tools and services to connect with our investors more efficiently." DoorDash, in a statement announcing its switch, said it was excited to "join a community of leading technology companies." Nasdaq, for its part, said it offers DoorDash "the deepest pool of liquidity in the U.S. equity market and provides additional opportunities to further their work in innovating local commerce.”

Many overseas companies have also elected to move their listings to the U.S. Nasdaq and the NYSE have been battling to attract overseas companies to join their ranks. Recent additions include Arm Holdings (ARM), Birkenstock (BIRK), and Flutter Entertainment (FLUT).

Delisting

While every stock exchange has standards for listing and will delist companies that no longer qualify for inclusion, stock exchanges don't particularly enjoy delisting stocks. After all, too much exclusion is bad for business, not least in terms of the marketing dollars needed to replace the company with another out there.

It sends a message that makes the exchange look like it was lax by letting certain companies join its roster in the first place. In most cases, the exchanges will do everything in their power to prevent a stock from being kicked out.

For instance, Nasdaq sets a $1 minimum price for a stock to remain listed. If a company's stock falls below that threshold, technically becoming a penny stock, with all the negative connotations that implies, the clock starts ticking.

If the stock stays under the $1 barrier for a month, it risks being delisted and forced to look for a less demanding exchange to trade on. Even then, the company will typically have six months to raise its stock price above $1.

Even at that point, if the stock fails to reach $1 for 10 consecutive business days, the company can appeal its delisting. In short, to lose your privileges in some cases, you almost have to want to be delisted.

Companies That Have Been Delisted

Delistings are an everyday occurrence. In February 2024 alone, 34 companies were delisted from U.S. exchanges like the Nasdaq. Reasons varied. For example, Luther Burbank Corp left Nasdaq because of a merger. Veradigm, meanwhile, was kicked off the Nasdaq for failing to meet its listing standards.

The Bottom Line

When voluntary, companies switch stock exchanges for greater visibility, access to a more extensive investor base, lower listing fees, and more favorable regulatory environments. The decision to switch exchanges is often driven by the company's growth objectives, the need to enhance liquidity and trading volume, and perhaps the pursuit of a more prestigious listing that aligns with its corporate image and investor expectations. Other times, companies having trouble staying on an exchange cannot keep up with the exchange's standards and are likely in trouble for different reasons already.