Approval of listing: Overview, definition, and example
What is approval of listing?
Approval of listing refers to the process through which a stock exchange or securities market grants permission for a company’s securities (such as shares, bonds, or other financial instruments) to be officially listed and traded on its platform. This process involves meeting specific regulatory and compliance requirements, which may include financial reporting, corporate governance standards, and other legal obligations. Once approved, the company’s securities can be bought and sold by investors on the exchange, providing liquidity and enabling the company to raise capital through public offerings.
For example, a company seeking to go public through an Initial Public Offering (IPO) must obtain approval from the relevant stock exchange to list its shares before they can be traded by the public.
Why is approval of listing important?
Approval of listing is important because it ensures that companies adhere to the required legal and financial standards, promoting transparency, fairness, and investor confidence in the market. For companies, obtaining approval to list their securities opens up opportunities for raising capital, increasing visibility, and enhancing their credibility with investors. For investors, the approval process ensures that they are investing in companies that meet the necessary regulations and offer a certain level of transparency, which helps mitigate risks associated with investments.
Understanding approval of listing through an example
Let’s say a company decides to go public by offering shares to the public through an IPO. The company applies to a major stock exchange, such as the New York Stock Exchange (NYSE), to have its shares listed. The exchange reviews the company’s financial statements, governance structure, and other regulatory requirements before granting approval for the listing. Once approved, the company’s shares can be publicly traded, allowing investors to buy and sell stock in the company on the exchange.
In another example, a company that has already gone public may seek to list additional securities, such as bonds, on a stock exchange. The company must submit an application for approval to ensure that the bonds meet the exchange’s listing standards, such as the proper documentation, financial disclosures, and other compliance requirements.
An example of an approval of listing clause
Here’s how an approval of listing clause might appear in an IPO agreement or securities offering document:
“The Company agrees to apply for the approval of listing of its common stock on [Insert name of stock exchange], subject to meeting all regulatory and compliance requirements as set forth by the exchange. The Company will use commercially reasonable efforts to secure approval for the listing and ensure the securities are eligible for public trading.”
Conclusion
Approval of listing is a critical step in the process of raising capital through public markets. It ensures that companies meet the necessary standards and regulations to list their securities on a recognized exchange, providing investors with a transparent and regulated environment for trading. For companies, obtaining approval to list offers opportunities for growth and capital raising, while for investors, it provides assurance that the securities meet required standards and are subject to regulatory oversight.
This article contains general legal information and does not contain legal advice. Cobrief is not a law firm or a substitute for an attorney or law firm. The law is complex and changes often. For legal advice, please ask a lawyer.