Nasdaq’s ‘Life-Changing Magic of Tidying Up’

Nasdaq has introduced new interpretive material, IM-5101-3, which allows the exchange to deny an initial listing at its discretion, even if the company meets all listing requirements. Nasdaq will focus on factors that could make the listed security susceptible to manipulation, particularly when the company shares traits with others whose securities have allegedly been subject to manipulative trading.

In determining whether to exercise this discretion, Nasdaq will consider these nonexclusive factors:

• Where the company is located – including the availability of legal remedies to US shareholders in that jurisdiction and other laws in foreign jurisdictions that present enforcement and diligence challenges.
• Who owns the company – the location of any person or entity that exercises substantial influence over the company, the availability of legal remedies to US shareholders in that jurisdiction, and foreign laws that present enforcement and diligence challenges.
• Liquidity and public float – whether the expected public float and share distribution, based on a review of underwriter, broker and clearing allocations and consideration of prior deals involving those service providers, at the time of the IPO and post offering, raises concerns about adequate liquidity and potential concentration.
• Advisors – whether there are issues concerning the company’s advisors (including auditors, underwriters, law firms, brokers, clearing firms or other professional service providers), based on factors including but not limited to whether the advisor or its principals have been reviewed by applicable regulators, the results of those reviews, and whether the advisors were involved in prior transactions that illustrated a pattern of concerning or volatile trading.
• Board and management experience – whether the company’s management and board have experience or familiarity with US public company and Nasdaq requirements.
• Regulatory issues – such as any regulatory referrals related to the company or its advisors, including referrals to the Financial Industry Regulatory Authority or SEC.
• Audit matters – whether the company currently or recently has had a going concern audit opinion and, if so, the company’s plan to continue as a going concern.
• Other concerns – whether there are other factors that raise concerns about the integrity of the company’s board, management, significant shareholders or advisors.

The rule change gives Nasdaq the authority to consider third-party activities, building on its preexisting ability to deny listing where a company has engaged in misconduct. It also aligns with the Commission’s recent focus on market cleanup. During the final months of 2025, the SEC imposed temporary 10-day trading suspensions on a dozen listed securities based on concerns about potential manipulation. In many instances, the SEC believes that unknown third parties, unrelated to the company, are making social media recommendations to artificially inflate the price and volume of the securities. In most cases, the securities were listed for less than one year. 

If Nasdaq determines to deny initial listing based on manipulation concerns, it will issue a written determination describing the basis for its decision. Under Nasdaq Rule 5205(i)(2), the company must, within four business days from the date of the staff’s written determination, issue a press release or other Regulation FD-compliant communication about its receipt of the determination and the specific rule(s) upon which it is based. The company may request review by a Hearings Panel within seven calendar days, as described in Rule 5815.

With this rule now in place, companies looking to list on Nasdaq will need to think beyond technical listing criteria. It will be important to consider qualitative factors, such as company location, significant owners, management experience, financial strength and the background of advisors. Because Nasdaq will be considering “similarly situated” companies, it may also be a good idea to monitor trading suspensions. That way, you can prepare to distinguish your company’s securities from those circumstances – and be better positioned to avoid delays or denials.

Nasdaq’s initial listing standards require companies to meet minimum standards, which for its Global Market and Capital Market tiers vary depending on whether they intend to qualify under applicable income, equity, market value or total assets/total revenue tests. Under each of these tests, companies also must demonstrate that there’s a liquid market for their shares – i.e., they have enough publicly trading shares to support an efficient and orderly trading market. Historically, the minimum liquidity requirement was much higher for companies applying to list under the equity, market value or total assets/total revenue standards, compared to the income standards.

For the liquidity calculation, Nasdaq only counts shares that are not held by an officer, director or 10% shareholder of the company, and that are not subject to resale restrictions of any kind. Also, as part of an earlier rule change, Nasdaq no longer counts shares registered for resale as unrestricted publicly held shares. Since April 2025, companies applying to list in connection with an IPO or uplist from the over-the-counter  market through a firm commitment underwritten public offering must meet the requirement based on shares being sold in the offering.

In the months following that rule change, Nasdaq observed that it became much more common for companies to apply for an initial listing under the net income standard. The exchange also came to believe that a minimum level of net income no longer justified a significantly lower liquidity requirement.

Accordingly, for companies listing under the income standards on the Nasdaq Global and Capital Markets, the amendment increases the minimum unrestricted public float from $8 million and $5 million, respectively, to $15 million. For the Nasdaq Capital Market, this means the liquidity requirement is $15 million regardless of whether the company is applying to list under the net income, equity or market value standard.

This rule change does not affect continued listings. Originally, Nasdaq also proposed suspending trading and immediately delisting companies if their market value of listed securities fell below $5 million for 10 consecutive business days, if they also were noncompliant with one or more of the numeric listing requirements in Nasdaq Rules 5450 or 5550 – i.e., bid price, market value of public float, equity, income or total assets/revenue. Nasdaq’s December 2025 amendment removed this aspect of the proposal, but the exchange has moved the market cap requirement into a separate proposal (check back soon for that summary).

Nasdaq has amended Rules 5810 and 5815 to accelerate the delisting process for securities that have a closing bid price at or below $0.10 for 10 consecutive business days, which it refers to as the “low price requirement.”

Before the amendment, Nasdaq rules said:

• Companies must maintain a minimum closing bid price of $1.00 to stay listed.
• If the closing bid price falls below $1.00 for 30 days, the company gets 180 days to fix it.
• In some cases, companies can get a second 180-day grace period.
• Companies can appeal delisting determinations to the Hearings Panel within seven calendar days, further extending the grace period, which will generally stay a trading suspension, except in the case of certain enumerated deficiencies. In those situations, trading on Nasdaq would be suspended during the review process.
• If a company’s stock is trading below the minimum closing bid price of $1.00, and thereafter drops below the low price requirement during a grace period, Nasdaq must cut short the grace period and issue a delisting notice.

The amendment makes this stricter:

• No grace period at all if a stock has a closing bid price of $0.10 or less for 10 consecutive business days.
• Nasdaq will immediately issue a delisting determination, even if the closing bid price has been at or above $1.00 within the past 30 days.
• The company’s stock will be suspended from trading on Nasdaq during the pendency of any Hearings Panel review.

These changes will accelerate the delisting process when the price of a company’s security quickly declines from above $1.00 to below $0.10. Nasdaq has observed that it is difficult for companies in this situation to regain compliance with the minimum bid price requirement. Once delisted, the securities will be subject to “penny stock rules” that require broker-dealers to provide a disclosure document to investors describing the risk of investing in penny stocks and approve customer accounts for such transactions. 

A company that is suspended under the rule can still appeal the delisting determination to the Hearings Panel within seven calendar days – and can appeal Hearings Panel decisions to the Nasdaq Listing and Hearing Review Council under the procedures spelled out in Rule 5815 – but its securities would trade on the OTC market while these review processes are pending. The Hearings Panel will continue to have the authority to find the company in compliance with all applicable listing standards and reinstate trading on Nasdaq.

The Hearings Panel will continue to have discretion, where it deems appropriate, to provide an exception for up to 180 days from the date of the delisting determination for the company to regain compliance. Companies can regain compliance by trading at or above $1.00 for a minimum of 10 consecutive business days, unless the Nasdaq staff exercises its discretion to extend the 10-business day period.

During the rule’s 45-day operative delay, companies that are currently facing a low trading price may want to consider a reverse stock split or other actions to regain compliance with the bid price requirement.

In 2024, a record number of China-based companies applied to list on Nasdaq, continuing a surge that began in 2020. Nasdaq says it has observed transparency and liquidity issues – as well as regulatory challenges – that put these companies’ investors at risk. According to Nasdaq, 70% of the matters it has referred to the SEC or FINRA since August 2022 have been related to trading in Chinese companies, while Chinese companies represent less than 10% of all Nasdaq listings. The exchange is also responding to current national security priorities.

Nasdaq believes that trading in secondary markets is challenging when few US investors participate in an offering and/or insiders retain significant ownership. If approved, the rule would require China-based companies listing in connection with an IPO to raise at least $25 million in gross proceeds from US public investors in a firm commitment offering.

Proposed Rule 5210(l) would apply to companies:

• That are headquartered or incorporated in China (including the Hong Kong Special Administrative Region and the Macau Special Administrative Region), or
• Whose business is principally administered in one of these jurisdictions, based on factors like:
  • Location of books and records.
  • Majority of assets, revenues, directors, officers or employees.
  • Control by China-based entities or individuals.

Nasdaq will consider these factors holistically, recognizing that there are various circumstances that affect where a company conducts its principal business activities.

Comparable requirements would apply to China-based companies seeking to list in connection with de-SPAC transactions, direct listings, and those uplisting from the OTC market or another national securities exchange. Specifically:

• De-SPACs: Proposed Rule 5210(l)(ii) would require a company to have at least $25 million in value of unrestricted publicly held shares following the business combination.
• Direct listings: Under proposed Rule 5210(l)(iii), companies would not be able to list on the Nasdaq Capital Market through a direct listing.
  • Companies listing in connection with a direct listing on the Nasdaq Global Market (NGM) or Nasdaq Global Select Market (NGSM) are already subject to enhanced listing standards, which would continue. NGM and NGSM companies must meet all applicable listing requirements, as well as the additional requirements of IM 5405-1 or IM-5315-1, respectively, which require meeting threshold levels of unrestricted public float – 200% of the otherwise applicable price-based requirement for NGM and $250 million for companies seeking to list on NGSM. For NGM and NGSM listings, the market value of shares would be based on the lesser of a valuation or the price from sustained trading in the private placement market.
• Uplistings and listing transfers: Proposed Rule 5210(l)(iv) would require a Chinese company that transfers its listing from the OTC market or another national securities exchange to first trade on that other market for at least one year before it is eligible to list on Nasdaq. In addition, like the requirement proposed for companies listing in connection with a business combination, Nasdaq proposes that these seasoned companies, which would be listing without an offering, have a minimum market value of unrestricted publicly held shares of at least $25 million.

When calculating the minimum market value of unrestricted publicly held shares, companies should also keep in mind that Nasdaq Rule 5005 excludes securities held by an officer, director or 10% shareholder of the company, as well as any securities subject to resale restrictions.

The SEC has received mixed comments to date on the proposal. At least one commenter suggested that the increased standards should apply to additional foreign jurisdictions that show an elevated risk of fraud. Other commenters suggest that the proposal should be narrowed and have a lengthier transition period.

If these proposed changes are approved, Nasdaq would also renumber the remainder of Rules 5210(m)and 5210(n) to ensure consistency in its rulebook.