By Marc Phillips

The potential riches of listing a dotcom business on a Stock Exchange has been the pinnacle of exit strategies for eCEO's. With capital markets demonstrating insatiable demand for Internet stocks in recent times, many US companies have sought Nasdaq listings whilst many Asian eCEO's only dream about it ! Yet, how realistic is it and what are the steps required for a technology or Internet company to achieve a NASDAQ listing? With 98 of the 208 NASDAQ Initial Public Offerings in Year 2000 trading below their issue price, is it a worthwhile exercise?

Firstly, NASDAQ is an acronym for the National Association of Securities Dealers Automated Quotation (or "NASDAQ") System. It is the commonly used term for The Nasdaq Stock Market, the world's first electronic-based trading market. The Nasdaq Stock Market began operating on 8 February 1971 with 250 companies. It has since evolved to a fully-fledged electronic stock market with over 5,000 companies listed. Nasdaq lists more non US companies than both the NYSE and AMEX combined !

Today, there are more than 58 Asian companies are listed on NASDAQ as detailed in Table One. This should demystify any confusion as to whether Asian based companies and specifically dotcom businesses can list on NASDAQ. On March 3, 2000 - AsiaInfo the leading provider of Internet related IT professional services and software products in China - listed on the NASDAQ (ASIA). In order to achieve this, a prospectus was lodged with the Securities and Exchange Commission.

One of the best ways to preview their prospectus is to visit http://quote.yahoo.com or http://quicken.excite.com and type in their ticker code (for example ASIA). Here you will find an in-depth profile of the business, analyst financial statement ratios and most importantly, an S-1 document or prospectus.

The US Securities and Exchange Commission (SEC) regulates all rules and procedures for NASDAQ listed companies and their disclosure rules state that the prospectus, which is registered with an S-1 form, must be made available to the public. For eCEO's, these prospectuses hold invaluable information, a roadmap and business plan to what the SEC and the public want to see from a NASDAQ company.

Once investment banks and lawyers are involved in listing a company on the NASDAQ, there is weeks and sometimes months of discussions with the Securities and Exchange Commission who undertake a period of due diligence on the company. As the SEC must approve any rule changes affecting trading or listing qualifications, they are integrally involved in reviewing the prospectus.

One of the last issues to be decided in listing on NASDAQ is the pricing of the Initial Public Offering. As this is determined to a large degree by the climate of the capital markets, companies have the option of lodging their prospectus with an F-1 form. This is a completed prospectus without the number of and the dollar value of each share. This allows the SEC to begin their due diligence process as well as provide the underwriters of the issue the flexibility to exactly determine the optimum combination of shares to offer at a particular price.

eCEO's should be aware that the Nasdaq Stock Market consists of two distinct, separate markets: the Nasdaq National Market and the Nasdaq SmallCap Market. The Nasdaq National Market ^{currently lists 3,832 companies - including some of the largest such as Microsoft, Dell, Cisco, AOL ,etc. It should be noted that each must meet demanding financial and corporate governance standards to be listed. In contrast, the Nasdaq SmallCap Market is the smaller capitalization tier of Nasdaq and now numbers more than 1,200 issues. As such, the financial criteria for listing are not as stringent as for the Nasdaq National Market. The most important issue here is that a company does not have to be profitable or have a proven business model, which many dotcom companies lack. The corporate governance standards, however, are the same. As SmallCap companies grow, they often move up to the Nasdaq National Market.}

^{Similar to all stock markets, NASDAQ has corporate governance listing standards that all companies must adopt. The most prominent of these include:}

^{distribution of annual reports;}

^{making available interim reports;}

^{a minimum of two independent directors;}

^{an audit committee, a majority of which are independent directors;}

^{an annual shareholder meeting;}

^{quorum requirement;}

^{solicitation of proxies;}

^{review of conflicts of interest;}

^{shareholder approval for certain corporate actions; and voting rights.}

^{eCEO's should also be aware that more than 160 employees in Market Regulation perform automated surveillance of trading on The Nasdaq Stock Market. Hence they are very strict and compliance rules must be adhered to.}

^{For many dotcom CEO's, its not a matter of if they will take their company public, it is a matter of when! Prior to April 14, when the NASDAQ Composite began to slide 25 to 30 percentage points off a high of 5,000 points, dotcom companies were accelerating their efforts to close their subscriptions and list on NASDAQ. Today, dotcom companies are being more cautious about when they list. The mentality amongst investment managers is that any dotcom company that listed prior to mid April were carrying a premium of 25 to 30 per cent.}

^{The Nasdaq Composite® Index measures the market value of all the domestic and foreign common stocks listed on The Nasdaq Stock Market. Price changes in each security effect either a rise or fall in the index, in proportion to the security's market value.}

^{More alarmingly is the trading volume and the volatility in the NASDAQ Composite which every aspirant eCEO should be watching as a barometer of the health for the Internet economy. We have seen too much volatility resulting in dotcom companies experiencing wild highs and lows in their stock prices which adds to greater instability amongst long term investors. Herein lies one of the most significant issues for the eCEO wishing to list on NASDAQ.}

^{Trading volume broke the 500 million shares per day barrier in 1996, and the following year the Composite Index broke 1,700 and was trading more shares per day than any other US market - some 640 million, worth over $18bn. On 16 July 1998, the Composite passed 2,000 for the first time in its 27-year history, closing at 2,000.56. At June 15, 2000 the Nasdaq Composite stood at 4,034.45}

^{While many believe that Nasdaq is simply home to high-tech US owned companies, it is a stock market for many companies and businesses producing services and products which are used by you daily.}

^{Recently, we have seen the international expansion strategy for NASDAQ cemented with deals with the Hong Kong Stock Exchange and Softbank Corporation. This is aimed at capitalising upon the new Internet economy.}

^{Firstly, in mid 1999, Softbank Corporation and NASDAQ created a new company called, Nasdaq-Japan. This new market offers Japanese investors the opportunity to invest in the world's leading high-tech and high-growth stocks and will provide enhanced access to equity capital for emerging Japanese firms. This market is targeted to begin operating in the fourth quarter of the year 2000.}

^{Secondly, in May 2000, Nasdaq and Hong Kong Exchanges and Clearing Ltd. (HKEx) began a pilot program to quote and trade seven Nasdaq stocks in Hong Kong in including: Amgen (AMGN), Applied Materials (AMAT)  Cisco (CSCO ), Dell (DELL), Intel (INTC), Microsoft (MSFT), Starbucks (SBUX).}

^{Although these Nasdaq shares are admitted for trading only and are not "listed" on the Stock Exchange of Hong Kong (SEHK)., Asian eCEO's should take comfort in the words of Nasdaq Chairman and Chief Executive Officer, Frank G. Zarb, "This is a step forward in the development of global trading of the world’s leading stocks. As our companies pursue business opportunities globally, it makes sense that they offer their stock globally - reinforcing their brand names in the minds of consumers and investors and having the opportunity to access a lower cost of capital."}

^{With these types of initiatives, seeking a NASDAQ listing is becoming more familiar and easier for companies. Nasdaq are excited about the prospects of a long term growth strategy in Asia with Charles Lee, chairman of HKEx, recently saying "the sustained economic development in Hong Kong, China and the Asia region will create an enormous liquidity pool in this time-zone which will attract the trading of quality global stocks."}

^{It is a rocky road to a NASDAQ listing yet the Internet has made it very easy to find information about the listing procedures. Further information about Nasdaq, can be found at www.nasdaq.com}

For more information contact APT Strategies at info@aptstrategies.com.au