Tracking potential up-listing candidates is well worth the effort because up-listings typically result in a significant inflow of new investor demand to a previously underfollowed stock. There are many institutional investors who may be very interested in a specific sector or company but who will simply not invest in an OTC stock. As soon as the stock becomes Nasdaq or Amex listed, those funds will jump in immediately, giving the stock a boost. Due to the lack of institutional following, many research analysts are reluctant to initiate coverage on OTC stocks, which in itself contributes to a lack of investment by institution funds.
In order to identify and track potential up-listing candidates, it is important to understand the criteria for an up-listing and watch for OTC traded companies that are actively looking to fulfill these criteria.
The most obvious criteria which issuers seek to satisfy are stock price thresholds and corporate governance requirements. Nasdaq requires a $4.00 minimum share price. As a result, small cap companies who intend to up-list will typically undergo a reverse split in order to meet the minimum share price level. DEER, RINO, CBEH, PUDZ and CAGC all underwent this identical process. CYRX may have to do the same.
A second tip off is a ticker change or other corporate governance changes which are done to accommodate the listing. For example, Puda re-incorporated in Delaware just prior to the up-listing. Another change to watch is changes to the composition of the board of directors. These are done to satisfy listing requirements at the Nasdaq and Amex which require a certain minimum number of independent directors on audit and compensation committees. It is expected that CYRX will increase their board to five members for this very reason. Watch for results of the CYRX board meeting scheduled for October 9th.
A third tip off is when institutional investors are already taking an interest in an OTC stock. This was the case for both CAGC and PUDZ, who both presented at Rodman & Renshaw (RODM). It is also the case for potential up-listers CYRX, LLFH and CBPO, both of which still trade OTC. By the way, CYRX recently presented at the Rodman & Renshaw conference too.