The NASDAQ Global Select Market Composite is a premier stock index representing a curated selection of U.S. and international stocks traded on the NASDAQ Global Select Market. As of August 2020, this composite includes over 1,400 stocks that have passed rigorous financial and liquidity assessments, alongside strict corporate governance standards set forth by NASDAQ itself.
Key Characteristics of the Composite
Market Capitalization-Weighted Index
The NASDAQ Global Select Market Composite is measured based on market capitalization, which means that companies with larger market values have a greater impact on the index’s overall performance. This approach highlights the performance of significant players in the market while still providing a snapshot of a broader set of stocks.
Exclusivity of the Global Select Market
The Global Select Market is distinctly more exclusive than the NASDAQ Global Market Composite. Every October, the NASDAQ Listing Qualifications Department conducts an annual review to determine if any stocks in the Global Market Composite qualify for advancement to the Global Select Market.
Tiers of NASDAQ Markets
NASDAQ offers three tiers of listings: 1. NASDAQ Global Select Market - The most exclusive tier, featuring the largest and most financially robust companies. 2. NASDAQ Global Market - A slightly less exclusive tier for companies that may not meet the strict requirements of the Global Select Market. 3. NASDAQ Capital Market - The tier with the least stringent requirements, often housing smaller companies with lower market capitalizations.
Historical Context
The NASDAQ Global Select Market Composite was established in July 2006, following a reorganization of the NASDAQ National Market, which split into two distinct tiers. This change was pivotal in acknowledging the international scope of the companies represented within the NASDAQ ecosystem, while also clarifying the standards expected from listed companies.
Market Capitalization and Tiers
The tier system used by NASDAQ emphasizes the significance of market capitalization. The companies listed under the Global Select Market tier are required to maintain strict financial criteria to secure their position:
- A company must meet stringent standards for earnings, capitalization with cash flow, capitalization with revenue, or a combination of assets and equity.
- Each stock undergoes an annual review to ensure continued eligibility within its respective tier. This ongoing evaluation ensures that only the strongest companies maintain their spot in the Global Select Market.
Promotion and Demotion
Companies listed on the NASDAQ have the opportunity to move between tiers based on their performance:
- If a company exceeds the current market cap requirements for its tier, it can be promoted to the next tier.
- Conversely, if it fails to meet its tier's requirements, it may be demoted to a lower tier, reinforcing the importance of maintaining financial health and solid governance.
Listing Requirements for the Global Select Market
To be considered for listing on the NASDAQ Global Select Market, a company must go through a formal application process that typically takes four to six weeks for NASDAQ to review. The process includes:
- Submission of an application.
- A preliminary review by the NASDAQ Listing Qualifications Staff.
- Issuance of a comment letter highlighting any issues.
- Resolution of issues within a specified timeframe.
This thorough review process ensures that all companies listed on the Global Select Market uphold NASDAQ's stringent standards. The requirements consist of four main financial standards: - Standard 1: Earnings - Standard 2: Capitalization with Cash Flow - Standard 3: Capitalization with Revenue - Standard 4: Assets with Equity
Furthermore, liquidity requirements differ depending on whether the company is an initial public offering (IPO), a spinoff, or an existing publicly-traded company.
Conclusion
The NASDAQ Global Select Market Composite plays a significant role in showcasing top-performing companies worldwide, with its stringent standards ensuring only the most financially sound entities are represented. The tiered structure not only facilitates a better understanding of a company’s market positioning but also supports the overarching integrity and health of the financial markets. Through its comprehensive framework, NASDAQ continues to uphold its commitment to providing a robust marketplace for investors and public companies alike.