The Importance of Small and Mid-Cap Companies for Exchanges

Author Name: 
Grégoire Naacke and Silvia Hirsch


The WFE market segmentation survey has been conducted yearly since 2007. The 2012 study is available on the Federation’s website ( For each market segment (large-cap, mid-cap, small-cap and micro-cap), WFE members were asked to provide, the number of listed companies, the number of trades, the market capitalization and the value of Electronic Order Book share trading.

At a worldwide level, there is no harmonized definition for large-cap, mid-cap, small-cap and micro-cap and the generally accepted definitions vary significantly from one geographical region to another. For example, in the United States large-cap are generally understood as being companies with a market capitalization higher than 10 billion USD whereas in Europe, the threshold used for defining large-cap is rather 1.3 billion USD (as in WFE market segmentation survey). The US thresholds could not be suitable for smaller exchanges.

Analysis of the top quartile of the market capitalizations in different regions shows that it is difficult to define universal thresholds. Indeed, as we can see with some examples hereafter, top quartiles are corresponding to various thresholds according to the country and the type of exchange, some exchanges being more that the others dedicated to small and mid-cap.


Some examples of thresholds corresponding to the first top quartile of market capitalizations




United States : 2.031 bn USD
(NYSE 4.371 & Nasdaq 0.762)

Mainland China: 0.953 bn USD
(Shanghai 1.462 & Shenzhen 0.680)

United Kingdom: 0.438 bn USD

Brazil : 1.703 bn USD

India: 0.301 bn US

Deutsche Börse: 0.364 bn USD

Mexico : 2.351 bn USD

Malaysia: 0.129 bn USD

Euronext: 0.736 bn USD


Australia: 0.109 bn USD

Nasdaq OMX Nordic: 0.528 bn USD


Taiwan: 0.254 bn USD
(Taiwan SE 0.464 & Gretai 0.087)

Switzerland: 1.719 bn USD




Source: WFE 2012 Market Segmentation Survey

The WFE market segmentation survey has the advantage of defining fixed thresholds that allow for comparisons among various exchanges and over time. The segments are defined as follows:

  • large-cap : market cap > USD 1.3 billion
  • mid-cap : USD 1.3 billion > market cap > USD 200 million
  • small-cap : USD 200 million > market cap > USD 65 million
  • micro-cap : market cap < USD 65 million

In 2012, for all WFE members taken as a whole, mid, small and micro-cap were accounting for 88% of the total number of listed companies, 38% of the number of trades, 11% of the market capitalization and 14% of the value of share trading.


Share of each market segment in each indicator for WFE members[1]








Source: WFE 2012 Market Segmentation Survey

This breakdown differs from one region to another and the challenges are not the same. In the United States, the thresholds to be used are different due to the higher size of companies and generally accepted definitions. In Asia Pacific, mid and small-cap are experiencing higher liquidity. In Europe, the works on thresholds are very important to put in perspective the recent definitions of SMEs that have been proposed.


Large cap defined with a USD 10 billion threshold in the US versus other listed companies

As already explained, in the United States large-cap are generally understood as companies with a market capitalization above USD 10 billion. At the end of 2012, 326 companies had a market capitalization superior to USD 10 billion. For information, the S&P 500 Index might therefore also include companies that are not considered as large cap with this USD 10 billion threshold.

The following graphs are presenting the evolution of the market capitalization and volumes of share trading for large cap versus other companies in the United States. A same scope analysis was adopted in order to avoid thresholds effects. It means that large caps represented in the following graphs are in fact large cap at the end of 2012 (that were not necessary large cap in 2011) and only companies listed both in 2011 and 2012 were taken into account. OTC volumes are not represented here.








Source: WFE 2012 Market Segmentation Survey


Large-cap defined by a USD 10 billion threshold accounted in 2012 for 75% of the market capitalization, 45% of the number of trades and 68% of the value of share trading. It is worth noting that the decrease of number of trades in 2012 was more pronounced for large cap than for other companies resulting in an increase of the average size of large-cap trades. This could, at least partly, illustrate a decreasing activity of algorithmic trading for US large-cap.

For “other companies”, it is important to observe more in details the different trends. The following table presents a same scope analysis of market capitalization, number of trades and value of share trading for those “other companies” with a market capitalization below USD 10 billion. Thresholds of the WFE market segmentation study were used.



Number of




Size of the Companies


Market Cap

Number of trades

trading value

1.3 bn USD < M Cap < 10 bn USD





200 m USD < M Cap < 1.3 bn USD

1 237




65 m USD < M Cap < 200 m USD





M Cap < 65 m USD






3 451




Source: WFE 2012 Market Segmentation Survey

The smallest companies, especially those with a market capitalization below USD 200 million were much more affected by the decrease of volumes in 2012. This would tend to show that small companies were more harshly impacted by the volumes decrease observed in the United States in recent years. Nevertheless, the 2012 trend should partly be explained by the fact that those companies underperformed.


Mid-cap in Asia-Pacific region


In Asia-Pacific region, more liquidity is observed for mid small and micro-cap (market capitalization < USD 1.3 billion) than in other regions. Indeed, the weight of mid and small cap in number of trades and value of share trading is significantly higher.









Source: WFE 2012 Market Segmentation Survey


This important activity on mid, small and micro-cap in Asia Pacific region is mainly driven by four exchanges where the average number of trades for mid, small and micro-cap is much higher than on other exchanges. For all WFE members taken as a whole, the average number of trades in 2012 was 130 thousand for mid, small and micro-cap and 1 546 thousand for large-cap. On Shanghai Stock Exchange, Korea Exchange, Shenzhen Stock Exchange and National Stock Exchange of India, the average number of trades for mid, small and micro-cap was much higher than the average (respectively 717 thousand, 539 thousand, 508 thousand and 403 thousand). It is nevertheless also worth noting that the number of trades is higher than the average for large-cap on those Asian Exchanges suggesting that the retail activity was more important in all the segments, not only mid, small and micro-cap.


SMEs definition in Europe

In Europe, there have been several attempts to define SMEs in order not only to provide financial aids but also to promote the access to capital markets funding for SMEs. The current EU definition[2] of SMEs was adopted on 6 May 2003 and came into force on 1 January 2005. SMEs were defined as companies with less than 250 employees and a turnover not exceeding EUR 50 million or annual balance sheet not exceeding EUR 43 million. Only those companies could be targeted by public schemes. In 2010, a report[3] by Fabrice Demarigny suggested to define SMEs with the following two criteria: at the initial public offering (IPO), companies for which the transaction value was of less than EUR 75 million and, if admitted to trading, companies for which the market capitalization was less than 35% of the average market capitalization on the regulated market(s) of the Home Member State of the issuer. More recently, in a paper[4] by ESMA Securities and Market Stakeholders Group (SMSG), it was recommended to adopt a broader definition of SMEs in order to provide advices for promoting the access to public funding for SMEs. The SMSG had chosen to look at SMEs as those companies having a market capitalization/enterprise value below EUR 500 million.

The important gap between one definition and the others shows that it is difficult to define SMEs with a market capitalization threshold. It will, among others, depend on the size of the country and the aim of the definition: providing financial aids or promoting financing by public markets. In the United States, for example, SMEs are defined with much broader criteria in the recent JOBS Act that aims at facilitating smaller companies access to capital markets that in previous definitions aiming at selecting SMEs eligible for State Aid.

Due to this wide range of SMEs definitions in Europe, an in-house study done by the Federation of European Securities Exchanges (FESE) compared the results obtained with different market capitalization thresholds and definitions. The thresholds used for micro, small and mid-cap were slightly different from the ones used in WFE market- segmentation study: respectively EUR 50 million; EUR 250 million and EUR 750 million.

Breakdown of number of companies according to different SME definitions in Europe (2011)









Source: FESE Listed instruments Survey 2009 - 2011

The comparison clearly shows that the current EU definition is too restrictive if the aim is to focus on the promotion of financing of SMEs by capital markets. Even for smallest exchanges, the number of SMEs according to EU definition is smaller than the number of micro-cap. The EUR 750 million threshold would be much more consistent with the 35% approach proposed in Fabrice Demarigny’s paper.


Percentage of mid and small cap in the number of IPOs

As already explained, the goal for exchanges, regulators and policy makers is to promote the financing of mid and small cap and SMEs by financial markets in a period where banks are expected to face growing difficulties for financing SMEs. In the past few years, the financial crisis lead to a decreasing number of IPOs in most of the countries but the figures for the first months of 2013 were more encouraging.








Source: 2012 WFE IPO Survey

In 2012, micro, mid and small-cap were accounting for more than 90% of the number of IPOs in the three regions: Americas, Asia Pacific and EAME and more than 50% of the market capitalization of IPOs in Asia Pacific and EAME.

[1] Excluding TMX Group

[2] Recommandation 2003/361/EC

[3] An EU-Listing Small Business Act – Establishing a proportionate regulatory and financial environment for Small and Medium-sized Issuers Listed in Europe (SMILEs), Report by Fabrice Demarigny, Global Head of Capital Markets Activities of Mazars Group, March 2010

[4] Securities and Markets Stakeholder Group – Report on Helping Small and Medium Sized Companies Access Funding - 12 October 2012 - ESMA/2012/SMSG/59