Nasdaq Expands Discretion to Deny Initial Listings for Third-Party Manipulation Risks

New rule grants Nasdaq additional authority to exercise discretion to deny initial listing to a company based on factors that could make the company’s securities susceptible to manipulation

Small-cap Asian stocks have proven particularly vulnerable to such manipulation risks

On December 19, 2025, the SEC approved Nasdaq’s proposal to expand its discretion to deny initial listings even when applicants meet all stated listing requirements. New Rule IM-5101-3 (Application of Discretion to Deny Initial Listing) permits Nasdaq to deny listing based on factors that could make a company’s securities more susceptible to manipulation. These factors include problematic relationships with advisors—such as auditors, underwriters, law firms, brokers, clearing firms and other professional service providers—or similarities to previously listed companies that experienced trading problems identified by Nasdaq or other regulators.

Nasdaq views this expanded authority as necessary to address companies that satisfy existing listing criteria but share characteristics with companies where trading problems have been observed, or share advisors with companies that previously demonstrated problematic or unusual trading patterns.

The rule change is effective immediately, and Nasdaq intends to apply the new rule to all companies currently in the application process.

Regulatory Background

Nasdaq has recently observed problematic trading patterns in certain newly listed companies, including unexplained price swings driven by social media-promoted trading designed to artificially inflate prices and volumes. The SEC has responded by temporarily suspending trading in several listed securities where manipulation appeared likely. All suspension orders cited by Nasdaq in its proposal involve companies based in Asia (China, Hong Kong, Indonesia, Japan, Malaysia and Singapore) and generally incorporated in the Cayman Islands or British Virgin Islands. Notably, Nasdaq emphasizes that these suspensions target third-party activities, with no specific allegations against the companies themselves or their associates as being involved in the potentially manipulative trading activity. According to Nasdaq, these cases expose investor protection gaps not fully addressed by existing listing criteria.

While existing Rule 5101 provides some discretion to deny listing where the company itself has engaged in misconduct or where an individual with a history of regulatory misconduct is associated with the company, it does not allow denial of a listing based on the potential for one or more unaffiliated third parties to engage in misconduct impacting the company’s securities.

By contrast, other U.S. exchanges, including NYSE and NYSE American, maintain tighter entry-stage controls through pre-review processes that screen applicants before accepting applications.

Discretionary Factors for Listing Denial

New Rule IM-5101-3 lists non-exclusive factors (none dispositive alone) for identifying applicants whose securities may be susceptible to manipulation despite meeting all listing requirements. Nasdaq may consider comparable company characteristics and advisor relationships, including:

• • Company Location. Where the company is located, including the availability of legal remedies to U.S. shareholders in that jurisdiction, the existence of blocking statutes, data privacy laws and other laws in foreign jurisdictions that may present challenges to regulators seeking to enforce rules against the company, the ability of parties to conduct comprehensive due diligence in that jurisdiction, and the transparency of regulators in the jurisdiction.
  • Influence and Control. Whether a person or entity exercises substantial influence over the company and, if so, where that person or entity is located, including the availability of legal remedies to U.S. shareholders in that jurisdiction, the existence of blocking statutes, data privacy laws and other laws in foreign jurisdictions that may present challenges to regulators seeking to enforce rules against the person or entity, the ability of parties to conduct comprehensive due diligence in that jurisdiction, and the transparency of regulators in the jurisdiction.
  • Liquidity and Concentration. Whether the expected public float and dissemination of the 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, raise concerns about adequate liquidity and potential concentration.
  • History of Key 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, (i) whether the advisor has been reviewed by applicable regulators and, if so, what were the results of those reviews; (ii) if the company’s advisor is a new entity, whether the advisor’s principals were involved with other firms with a regulatory history; and (iii) whether any of the company’s advisors were involved in prior transactions where the securities became subject to a pattern of concerning or volatile trading.
  • Management and Board Experience. Whether the company’s management and board of directors have experience or familiarity with U.S. public company requirements, including regulatory and reporting requirements under Nasdaq rules and federal securities laws.
  • Regulatory Referrals. Whether there are any FINRA, SEC or other regulatory referrals related to the company or its advisors and, if applicable, the results of those referrals.
  • Going Concern. Whether the company currently has, or recently has had, a going concern audit opinion and, if so, what is the company’s plan to continue as a going concern.
  • Integrity. Whether there are other factors that raise concerns about the integrity of the company’s board, management, significant shareholders or advisors.

Notice, Disclosure and Appeal Procedures

Upon denial, Nasdaq staff will issue a written determination explaining its decision. Within four business days, the company must publicly announce the denial and the specific bases under Nasdaq rules in a press release or other Regulation FD-compliant manner. The company may request a Hearings Panel review within seven calendar days of the denial.

Final Rule Text

The final rule text is available here.

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OTHER NASDAQ INITIAL LISTING STANDARD UPDATES

$15 Million Minimum Public Float for Net Income Standard Listings

On December 18, the SEC approved Nasdaq’s proposed amendments increasing the minimum market value of unrestricted publicly held shares (i.e., shares not held by officers, directors or 10% shareholders and not subject to resale restrictions) for new listings under the net income standard. The new requirement of $15 million applies to both the Nasdaq Global Market and Nasdaq Capital Market (previously $8 million and $5 million, respectively). The changes are designed to help ensure sufficient liquidity for price discovery, reduce volatility, and support an efficient and orderly market. The amendments become operative January 17, 2026 (30 days after SEC approval).

Proposed $25 Million Minimum Offering Size for China-Based IPOs—SEC Review Pending

Also on December 18, the SEC requested additional time to consider whether to approve a Nasdaq proposal establishing a minimum $25 million IPO size for companies headquartered, incorporated or “principally administered” in China, Hong Kong and Macau. The same minimum size requirement would apply to China-based companies listing via de-SPAC transactions, direct listings, or transfers from the OTC markets or other national securities exchanges. Additionally, China-based companies would be prohibited from direct listings on the Nasdaq Capital Market.