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Recently, Nasdaq, with the approval of the U.S. Securities and Exchange Commission (SEC), made two landmark adjustments to the rules governing initial listings. These adjustments concern (i) the quantitative liquidity thresholds and (ii) Nasdaq’s authority to review and guard against potential market manipulation risks. For companies seeking a U.S. listing, this development signifies that Nasdaq’s admission criteria have evolved from a mere numerical checklist into a deeper compliance rationale.
With Nasdaq raising its market liquidity requirements and introducing new Interpretive Material IM-5101-3 (hereinafter “IM-5101-3”), which grants Nasdaq broader but limited discretionary authority, companies must now upgrade their listing preparation from a focus on meeting indicators to a systematic compliance project. In this new regulatory environment, applicants must not only satisfy more stringent financial and liquidity benchmarks but also proactively demonstrate that their governance structure, intermediaries, and offering arrangements possess resilience against market manipulation.
Significantly Higher Liquidity Thresholds: Building a “Safety Chassis” for Price Discovery
Nasdaq’s decision to raise the Market Value of Unrestricted Publicly Held Shares (MVUPHS) requirement aims to reduce the risk of price volatility and manipulation associated with thinly traded securities.
Effective 17 January 2026, Nasdaq has substantially raised the minimum liquidity thresholds for companies applying under the “Net Income Standard” or “Income Standard”, as follows:
- Nasdaq Capital Market (Rule 5505(b)(3)(C)): For listings under the “Net Income Standard”, the minimum MVUPHS will rise from US$5 million to US$15 million.
- Nasdaq Global Market (Rule 5405(b)(1)(C)): For listings under the “Income Standard”, the minimum MVUPHS will increase from US$8 million to US$15 million.
In its approval notice, the SEC emphasised that a robust public float is the cornerstone of effective price discovery. For listing applicants, this means the IPO offering size and allocation structure must be carefully designed to ensure that a verifiable and compliant free float is achieved on the first day of trading.
Institutionalising “Limited Discretion”: Extending Supervision to External Risk Factors
Beyond quantitative thresholds, the newly introduced IM-5101-3 explicitly grants Nasdaq a legal basis to reject a listing application on the grounds of public interest.
IM-5101-3 stems from Nasdaq proposal SR-NASDAQ-2025-104 and took effect on 19 December 2025. This rule was prompted by regulators’ observations that certain small-cap issuers experienced abnormal trading activity shortly after listing, often involving unidentified third parties disseminating investment tips on social media to manipulate share prices.
Under IM-5101-3, even where a listing applicant fully satisfies the quantitative criteria, Nasdaq may exercise its discretion based on a series of non-exclusive factors, including but not limited to:
- Jurisdictional Risk: Nasdaq may consider the locations and regulatory environments of the company and its key control persons, including the availability of legal remedies for U.S. shareholders, the existence of blocking statutes, data privacy or other laws impeding U.S. enforcement, the feasibility of conducting comprehensive due diligence locally, and the transparency of local regulators.
- Share Distribution and Concentration Risk: Nasdaq may review the allocation arrangements of underwriters, brokers, and settlement agents, referring to their prior distribution patterns to assess whether the expected public float at and following the IPO raises concerns regarding adequate liquidity or potential shareholder concentration.
- Management and Board Experience: Nasdaq may assess whether the board and management team have experience operating a U.S. public company and an adequate understanding of Nasdaq’s rules and disclosure obligations under U.S. federal securities laws.
- Going‑Concern Risk: Whether the company has recently received a going‑concern qualification from its auditors, and the adequacy of plans adopted to sustain ongoing operations.
In short, meeting the metrics no longer guarantees approval. Applicants must be prepared to clearly articulate and substantiate why their business and capital structure are not vulnerable to manipulation or compliance breakdown.
The Value of Professional Advisors: Core Indicators in Risk Assessment
Under Nasdaq’s revised framework, the roles of auditors, lawyers, underwriters, and other professional advisors as regulatory gatekeepers have become more critical than ever. Their track record, regulatory history, and past involvement in cases exhibiting abnormal trading behaviour are now key elements in Nasdaq’s risk assessment.
According to IM-5101-3, Nasdaq may not only scrutinise advisory institutions themselves but also consider the compliance history of their principals or newly formed affiliates, including whether they have been the subject of referrals or disciplinary actions by the Financial Industry Regulatory Authority (FINRA), the SEC, or other regulatory authorities.
Accordingly, selecting a professional team with proven Nasdaq listing experience, impeccable integrity, and proactive risk-screening capabilities is no longer a matter of cost alone – it constitutes the first line of defence in building regulatory confidence, reducing review uncertainty, and mitigating market-manipulation risks.
Project Management Logic Upgrade: From Compliance to Demonstrable Systems Engineering
Faced with these more granular regulatory standards, companies planning a Nasdaq listing should implement a reverse-scheduled compliance roadmap of 18 to 24 months.
Given Nasdaq’s potential for multiple rounds of inquiries on issues such as the source of MVUPHS, intermediary backgrounds, or cross-border enforcement feasibility, applicants should not expect the review process to conclude within a few weeks.
Preparations should begin early across the following dimensions:
- Governance Structure: Including board composition and the ratio of independent directors.
- Liquidity Design: Covering market-maker configuration and the proportion of freely tradable shares.
- Compliance Evidence Chain: Including revenue‑quality verification, audit working papers, and due diligence documentation.
Only by treating the listing process as a verifiable compliance system can a company respond convincingly when regulators exercise discretion and thereby significantly improve its prospects for first-round approval.
Conclusion
In summary, Nasdaq’s two recent rule changes, namely the increase in MVUPHS liquidity thresholds effective 17 January 2026, and the institutionalisation of limited discretion under IM-5101-3 effective 19 December 2025, send a clear signal of tighter and more sophisticated supervision.
This shift requires companies preparing for a U.S. listing to transition from mere metric fulfillment to a more comprehensive model of compliance substantiation and risk defence. Under the new regulatory framework, prospective issuers must not only meet higher entry thresholds but also proactively demonstrate, through experienced Nasdaq advisors, sound corporate governance, and transparent offering structures, their capacity to resist market-manipulation risks and maintain continuous compliance.
For companies with strong fundamentals, solid governance, and forward‑looking compliance awareness, the new rules, while raising the bar, also establish a more credible and selective platform. This, in turn, presents an opportunity to gain higher market trust and long-term capital recognition on the Nasdaq.
If you have any enquiries regarding Nasdaq listings, or wish to learn more, please contact our Partner Gordon Tsang, Senior Associate Gary Kwok or Associate Sam Liu.
This article is provided for general informational purposes only. It does not constitute, and should not be construed as, legal advice or investment guidance, nor does it create a solicitor-client relationship. The information contained herein may be updated or amended from time to time, and the applicability of any content will depend on specific facts and relevant laws or regulations. The feasibility of any company’s listing should be assessed on a case-by-case basis in light of its particular circumstances and the applicable regulatory framework. To the fullest extent permitted by law, our firm and our lawyers accept no responsibility for any loss or damage (whether direct or indirect) arising from any decision, action, or inaction taken in reliance upon the content of this publication.