On May 14, 2026, the U.S. Securities and Exchange Commission (SEC) officially approved the proposed rule change SR-NASDAQ-2025-069 (as modified by Amendment No. 3), introducing additional initial listing standards for companies primarily operating in China (including the Hong Kong and Macau Special Administrative Regions). The rules will take effect 30 days after approval.

This move is not merely elevating standards but represents Nasdaq’s positive signal in balancing investor protection and market vitality. For high-quality Chinese companies with strong fundamentals and compliance awareness, the new rules provide a clearer pathway to stand out in the global capital markets, attract premium investors, and achieve long-term value enhancement.

The New Listing Standards

In recent years, Chinese companies have shown strong enthusiasm for U.S. listings, reaching new highs in 2024 and 2025. China holds significant weight in emerging market indices and is a key allocation for global investors. However, some smaller or less liquid listings have raised regulatory concerns, including but not limited to potential manipulation risks, audit transparency, and cross-border enforcement challenges.

Nasdaq’s new rules focus on “China-based Issuers” and use quantitative standards to improve listing quality, aiming to ensure sufficient liquidity, investor base, and fair and orderly trading, while addressing concerns from Congress, state financial officers, SEC and the market.

Minimum Offering Size for an IPO

When conducting an IPO, China-based issuers must use a Firm Commitment Offering to issue securities to public holders in the United States, with gross proceeds to the company of no less than US$25 million. This is higher than the minimum Market Value of Unrestricted Publicly Held Shares (MVUPHS) of US$15 million required for Nasdaq Capital Market.

Minimum Market Value of Publicly Held Shares for a Business Combinations (e.g., Special Purpose Acquisition Companies (SPAC) Mergers)

To prevent circumvention of IPO rules, China-based issuers listing via business combination must have a MVUPHS of no less than US$25 million. This requirement ensures that the post-merger entities possess a sufficient public float, thereby mitigating the risk of speculative trading.

Direct Listing Restrictions (as defined in Rule IM-5315-1)

China-based issuers may only apply  for direct listing on the higher-liquidity Nasdaq Global Select Market (NGS) and are not permitted to list on the Nasdaq Global Market (NGM) or Nasdaq Capital Market (NCM) via direct listing. They must also satisfy stricter requirements (e.g., a minimum Market Value of Publicly Held Shares of US$250 million).

The above restrictions help ensure that a company has sufficient public float, investor base, and trading interest to generate the market depth and liquidity necessary to promote fair and orderly trading in the secondary market.

Transfer Listing Requirements

China-based issuers transferring from over-the-counter (OTC) market or other national exchanges must have traded for at least one year on the prior market and have a MVUPHS at no less than US$25 million.  This requirement ensures that securities to be listed on Nasdaq have adequate liquidity, distribution, and U.S. investor interest.

Determination Criteria for “China-based Issuers”

Nasdaq will holistically assess the following factors to determine whether a company is a China-based issuer, including:

• its headquarters or place of incorporation
• the location of its books and records
• the location of its assets (with at least 50% of the company’s assets located in such jurisdiction)
• the source of its revenues (with at least 50% of the company’s revenues derived from such jurisdiction)
• the location and citizenship of its directors and officers (with at least 50% of the company’s directors/officers are citizens of, or reside in, such jurisdiction)
• the location of employees (with at least 50% of the company’s employees based in such jurisdiction)
• whether the company is controlled by, or under common control with, one or more Chinese entities.

Nasdaq makes determinations on a holistic basis and may request sufficient information to support the above assessment.  If China-based issuers do not satisfy the additional requirements described above, Nasdaq may deny their applications. Appeals are available under Nasdaq Rule 5800 Series.

Deeper Regulatory Logic and Data Support

Nasdaq’s analysis shows that many Chinese IPOs below US$25 million from 2022-2025 faced higher rates of compliance issues, with nearly half cited for continued listing failures. In addition, referrals for suspected market manipulation involving Chinese emerging market companies were disproportionately high relative to the overall proportion of Chinese companies listed on Nasdaq.

The rules aimed at mitigating the illiquidity, high volatility, and potential manipulation risks often associated with small-scale listings. Additionally, the new rules emphasize the due diligence advantages of a Firm Commitment Offering, which helps enhance disclosure quality and bolster investor confidence.

How High-Quality Companies Should Respond

• Plan capital operations well in advance: target an offering size of over US$25 million and partner with highly experienced investment banks.
• Strengthen corporate governance and transparency: enhance disclosures regarding VIE structures, audit arrangements, and internal controls, while proactively aligning with Public Company Accounting Oversight Board (PCAOB) and SEC requirements.
• Focus on core competitiveness: demonstrate strong revenue growth, a clear business model, and a global vision, highlighting the company’s advantages over “small-scale and speculative” issuers.
• Secure professional team support: collaborate with lawyers, auditors, and advisors who are deeply familiar with both U.S. and Chinese regulatory frameworks to ensure the completeness of the application materials.

Conclusion: Strategic Opportunities Under the New Rules

Nasdaq’s rule changes mark a more mature and standardized phase in U.S.-China capital market interactions. They serve as a screening mechanism that weeds out low-quality and volatile cases while creating a healthier, more liquid environment for truly competitive companies.

For well-governed, high-growth Chinese enterprises, these rules provide a competitive advantage: higher standards attract more institutional investors, enhance international brand recognition, and fuel further development for continuous financing and development. In the context of global allocation to China stories, leading compliant companies will seize broader opportunities and maximize value.

Companies intending to list are advised to assess early, prepare proactively, and embrace this standardized opportunity to leverage this regulatory normalization as a strategic opportunity.

 If you have any enquiries regarding Nasdaq listings, or wish to learn more, please contact our Partner Gordon Tsang, Senior Associate Gary Kwok, Associate Maggie Yim 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.

The Hong Kong regulatory landscape has witnessed a watershed moment in corporate accountability and audit regulation. On 23 April 2026, the Securities and Futures Commission (“SFC”) and the Accounting and Financial Reporting Council (“AFRC”) announced simultaneous, sweeping regulatory actions against PricewaterhouseCoopers Hong Kong (“PwC”) concerning its audits of:

• China Evergrande Group (in liquidation) (“Evergrande”, stock code prior to delisting: 3333) for the years ended 31 December 2019 and 2020;
• Evergrande Property Services Group Limited (stock code: 6666) for the year ended 31 December 2020; and
• China Evergrande New Energy Vehicle Group Limited (stock code: 708) for the year ended 31 December 2020.

These coordinated actions, resulting in an unprecedented HK$1 billion shareholder compensation agreement, record-breaking fines, and a stringent practice limitation, underscore the severe consequences of audit failures and highlight a rigorous, cross-boundary approach to capital market enforcement.

In this newsletter, our Regulatory Enforcement and Compliance team provides an overview of the regulators’ findings, the ensuing sanctions, and the critical takeaways for accounting firms, listed companies, and professional advisers.

1. The SFC Settlement: A Historic HK$1 Billion Shareholder Compensation

In a first-of-its-kind resolution,[1] the SFC reached an agreement with PwC wherein the firm will set aside HK$1 billion to compensate eligible independent minority shareholders of Evergrande. Under the agreement, the matter is fully and finally resolved without an admission of liability from PwC, provided the firm fulfils the settlement terms.

The Core Misconduct: False and Misleading Financials

The SFC’s investigation revealed that Evergrande (delisted in August 2025 and currently in liquidation) manipulated its financial results by prematurely recognising revenue from property sales prior to completion and delivery. The numbers reflect the substantial scale of the misstatements:

• FY2019: Audited annual revenue was overstated by RMB213.9 billion (a 44.79% overstatement). The reported profit of RMB33.5 billion should have been a loss of RMB7.12 billion.
• FY2020: Audited annual revenue was overstated by RMB350.2 billion (a 69.03% overstatement). The reported profit of RMB31.4 billion should have been a loss of RMB19.9 billion.

Auditor Failures Identified by the SFC

While not admitted by the firm, the SFC considered that PwC failed in its essential gatekeeping role. Key failures included:-

• Being concerned in the disclosure of false or misleading information under section 277 of the Securities and Futures Ordinance (SFO).
• Failing to maintain auditor independence and exercise adequate professional scepticism.
• Acquiescing to Evergrande management’s manipulation of audit samples and site inspections.
• Failing to perform effective site inspections to ascertain the construction status of properties for proper revenue recognition.

The SFC announcement can be viewed here.

2. The AFRC Sanctions: Record Fines and Practice Limitation

Running parallel to the SFC’s actions, the AFRC imposed its own significant disciplinary sanctions against PwC and two of its former partners and registered responsible persons, Mr. Cheung Siu Cheong (engagement quality control reviewer) and Mr. Chow Sai Keung (designated quality control system responsible person).

Disciplinary Actions

• Pecuniary Penalties: A historic HK$300 million fine was levied against PwC, alongside HK$5 million fines for each of the two former partners.
• Practice Limitation: For the first time, the AFRC imposed a six-month practice limitation prohibiting PwC from accepting, performing, or issuing reports for new Public Interest Entity (PIE) audit clients.
• Public Reprimands & Remediation: PwC, Cheung and Chow each received public reprimands. PwC is additionally required to provide the AFRC with periodic remediation updates over a 12-month period and arrange additional training.

The AFRC’s Key Findings

The AFRC found multiple audit deficiencies at PwC Hong Kong. The AFRC highlighted that the auditor disregarded clear evidence of premature revenue recognition—ignoring evidence from its own site visits which showed properties were still under construction—and knowingly permitted unsupported consolidation adjustments.

Critically, the AFRC identified systematic deficiencies in the firm’s partner performance evaluation framework. The framework disproportionately rewarded client relationships and revenue generation over audit quality. The engagement partner relied on the Evergrande group for over 80% of his revenue, creating a massive self-interest and intimidation threat that senior management failed to mitigate or properly assess. Furthermore, the auditor allowed management to influence audit testing by swapping site visit samples and essentially assumed management’s responsibility in preparing the financial statements of subsidiaries.

These deficiencies allowed Evergrande to materially misstate major assets. Properties under development and completed properties held for sale were reported at RMB1,327.5 billion and RMB1,406.4 billion in 2019 and 2020, representing 60% and 61% of the Group’s total assets, respectively.

The AFRC announcement can be viewed here.

3. PwC’s Response and Remediation

Following the announcements, PwC Hong Kong issued a statement acknowledging that the work on the Evergrande audits fell “well below our high expectations”. The firm emphasized that the AFRC’s practice limitation applies exclusively to new PIE clients in Hong Kong for six months and will have no impact on existing clients.

PwC China stated that it “has taken decisive accountability measures” over the past two years, which include appointing new leadership, closing the relevant audit branch responsible for the failures, and implementing a comprehensive programme to strengthen its internal culture, quality, and governance frameworks.

PwC’s statement can be viewed here.

4. Is it worth it?

The latest action by the SFC and AFRC likely marks the final chapter of the fallout from the Evergrande audits. However, the disciplinary actions serve as a critical warning to the broader financial and professional services industry:

• Elevated Gatekeeper Accountability: Regulators will not hesitate to hold auditors and professional advisers directly accountable for the accuracy of public disclosures. The unprecedented HK$1 billion compensation fund establishes a new benchmark for restorative justice in the Hong Kong capital markets, shifting the financial burden of corporate fraud onto gatekeepers who fail to identify it.
• Commercial Interests vs. Professional Duties: The AFRC’s explicit criticism of PwC’s partner evaluation metrics sends a clear message. Professional firms must ensure their remuneration structures, KPIs, and corporate governance frameworks actively promote and protect independence and quality, rather than purely incentivizing revenue generation.
• The Necessity of Professional Scepticism: Acquiescing to management requests, such as allowing management to select audit samples, fatally undermines the audit process. Scepticism and independent verification remain the non-negotiable bedrock of statutory audits.
• Cross-Boundary Regulatory Coordination: Both the SFC and the AFRC expressed gratitude to the PRC Ministry of Finance and/or the China Securities Regulatory Commission (CSRC) for their support. This highlights an era of robust cross-boundary cooperation between Hong Kong and Mainland regulators in combating market misconduct.

As the regulatory environment continues to tighten, professional firms, licensed corporations, and listed entities must proactively review their internal controls, compliance frameworks, and conflict-of-interest policies to ensure they meet the uncompromising standards now expected by Hong Kong’s regulators.

Is it worth it then? The answer is obvious.

If you have any questions or would like to understand how these regulatory developments may impact your business or compliance obligations, please reach out to our Partner Kenneth Leung.

This article is for information purposes only. Its content does not constitute legal advice and should not be treated as such. Stevenson, Wong & Co. will not be liable to you in respect of any special, indirect or consequential loss or damage arising from or in connection with any decision made, action or inaction taken in reliance on the information set out herein.

[1] “For the first time, auditors of a defunct company are providing compensation to independent minority shareholders who were harmed by false and misleading financial statements,” said Ms. Julia Leung, the SFC’s Chief Executive Officer.

The Hong Kong initial public offering (IPO) market has experienced a resounding resurgence. Following a robust 2025 that saw more than 460 new listing applications and over 110 successful listings raising approximately HK$286 billion,[1] the momentum has carried fiercely into the first quarter of 2026. With 40 new listings raising nearly HK$109.9 billion in Q1 alone, Hong Kong has reclaimed its position as the premier global listing venue.[2]

However, this quantitative triumph has unmasked significant qualitative vulnerabilities. Amid the surge in new listing applications in 2025, the Securities and Futures Commission (“SFC”) and The Stock Exchange of Hong Kong Limited (“SEHK”) have observed the declining quality of draft listing documents as well as certain substandard conduct of licensed corporations carrying out sponsor work (“Sponsors”).

In response, the SFC issued a sternly worded circular on 30 January 2026 (the “Circular”), putting the industry on notice. The message is clear: the pursuit of market share must not come at the expense of substantive due diligence.

The Market Reality: Compromised Quality and “Process-Driven” Due Diligence

The SFC has expressed concern that some Sponsors may be adopting a process-driven approach to listing applications, rather than one focused on substantive due diligence and advisory services. This regulatory concern is supported by specific examples of substandard conduct highlighted by the SFC.

As highlighted in the Appendix to the Circular:-

1. Some Sponsors fielded inexperienced deal teams, with over 40% of members possessing less than one year of local IPO experience.
2. Operational breakdowns occurred at the offer stage due to reliance on frequently unreachable offshore teams stationed in the Philippines.
3. Draft listing documents suffered from “copy-and-paste” practices, creating unreasonably lengthy and boilerplate disclosures.

In the Circular, the SFC outlines the specific areas of concern as follows:-

1. There are serious deficiencies in the preparation of some listing documents and responses to regulatory comments as well as failure to attend to key regulatory processes and procedures at the offer stage.
2. Sponsors overly rely on experts and third parties, including legal advisers, accountants, valuers and others to perform specific tasks, without adequately assessing their competency and resources.
3. The capacity of Principals (as defined in the Code of Conduct for Persons Licensed by or Registered with the SFC) to supervise the transaction teams at Sponsors and participate in the listing engagements is insufficient.
4. Sponsors have attempted to appoint Principals that are not suitably qualified.
5. Sponsors have insufficient staff with appropriate levels of knowledge, skills and experience.

The “Strained Principal”

As of 29 January 2026, there were over 420 active listing applications in the pipeline. This massive workload is disproportionately concentrated among a small fraction of the market’s eligible Principals, sparking a fight for talent as Sponsors scramble to meet regulatory capacity limits. The SFC noted a concerning number of Principals simultaneously undertaking six or more active listing engagements.

The SFC has drawn a hard line on capacity. The SFC now sees any Sponsor that has designated any Principals to simultaneously supervise or participate in six or more active listing engagements (Sponsors with Strained Principal(s)) as lacking adequate resources to carry out sponsor duties, unless under very exceptional circumstances. For the first time ever, the SFC expressed an expectation that a Principal should take on up to five active engagements.

To enforce this, the SFC required all Sponsors to submit the names and number of appointed Principals and the number of active listing engagements each is engaged in. Going forward, new licence applications for individuals intending to engage in Type 6 IPO sponsor work must include a document signed off by all Managers-In-Charge of the Overall Management Oversight (OMOs) confirming compliance with the five-engagements capacity limit.

Stringent Remedial Actions and Vetting Suspensions

The SFC and SEHK are shifting from issuing warnings to taking direct supervisory and enforcement actions. In December 2025, they issued a joint letter to 13 specific Sponsors citing concerns over recent listing applications. These “Concerned Sponsors” and any Sponsors with Strained Principal(s) should expect the SFC to conduct on-site thematic inspections of their sponsor work and resources in the near future.

Furthermore, the SFC has equipped itself with immediate deterrents during the application phase:

• Where draft listing documents are severely deficient, the relevant listing applications may be returned or vetting may be suspended.
• If a listing document is unreasonably lengthy, the regulators may put the vetting process on hold. Generally, the main body of a listing document should not exceed 300 pages (excluding expert reports in appendices).

Elevated Competency and Examination Thresholds

As noted above, some Sponsors fielded teams with over 40% of staff having less than one year of local IPO experience. In response, the SFC has tightened examination requirements. All individuals engaging in IPO sponsor work must now pass HKSI LE Papers 1 and 16 not more than three years before their first engagement in IPO sponsor work, unless otherwise exempted. Sponsors must report any non-compliant staff.

Management’s Responsibilities

While a Sponsor’s management may delegate operational functions to its staff, management is ultimately responsible for supervising sponsor work and ensuring compliance with all relevant legal and regulatory requirements.

In case of serious failures, the SFC may take regulatory actions including restricting the Sponsors’ business scope or the number of active listing engagements the Sponsors can undertake. The SFC may also commence investigation and/or disciplinary action in serious cases of misconduct against the Sponsor and its Principals as well as Management who are accountable for the Sponsor’s failures.

So what should Sponsors do now?

1. Strictly monitor the workload of Principals to ensure none breach the five-engagement threshold.
2. Review active listing engagements to ensure that (i) adequate resources are allocated to each engagement; and (ii) any functions outsourced to third parties are supervised by qualified staff.
3. Conduct an immediate internal audit of all Transaction Team members to ensure strict compliance with the HKSI LE Papers 1 and 16 requirements.
4. Critically assess the eligibility and suitability of each company for listing before submitting a listing application, paying particular attention to “red flag” issues, such as fund flows, rather than adopting a process-driven approach.
5. Ensure compliance with the SFC’s page limits for listing documents by adequately summarizing content from other sections into the “Summary” section rather than mere copy-and-pasting.
6. Prepare for more intense scrutiny of internal review and due diligence process, conducting reviews and overhauls of internal policies if necessary.

At Stevenson, Wong & Co., our Regulatory and Litigation team possesses extensive experience in advising licensed corporations on SFC compliance, inspections, and remediation. Should you require strategic counsel on assessing your firm’s sponsor resources or navigating an impending SFC inspection, please contact our Partners Rainbow Ip or Kenneth Leung.

This article is for information purposes only. Its content does not constitute legal advice and should not be treated as such. Stevenson, Wong & Co. will not be liable to you in respect of any special, indirect or consequential loss or damage arising from or in connection with any decision made, action or inaction taken in reliance on the information set out herein.

[1] According to the Circular, from 1 January to 31 December 2025, more than 460 new listing applications were received by the regulators. The Circular also notes that during this same period, there were over 110 successful listings which raised approximately HK$286 billion. See https://apps.sfc.hk/edistributionWeb/api/circular/openFile?lang=EN&refNo=26EC4.

[2] Based on market data reported by KPMG China in their Q1 2026 review, Hong Kong’s IPO market raised HK$109.9 billion across 40 new listings in the first quarter. See https://kpmg.com/cn/en/insights/2026/04/china-hk-ipo-2026-q1-review.html.

Stevenson, Wong & Co. acted as Hong Kong legal adviser to US Tiger Securities, Inc. (the “Underwriter”), the underwriter of ChowChow Cloud International Holdings Limited (NYSE American: CHOW) (“ChowChow Cloud”) in connection with its successful listing on NYSE American on 16 September 2025 (the “NYSE American Listing”). ChowChow Cloud offered a total of 2,600,000 Ordinary Shares, priced at US$4.00 per share , raising aggregate gross proceeds of approximately US$10.4 million.

ChowChow Cloud is a pioneer in providing one-stop cloud solutions supporting companies across the IT industry value chain throughout their cloud transformation journey, from consulting, deployment, and migration to cloud environment building and management.

ChowChow Cloud’s business primarily comprises (i) digital transformation consulting services consisting primarily of cloud suitability assessment, real-time resource management and strategic planning and advisory, (ii) professional IT services with a wide range of capabilities designed to facilitate seamless cloud integration and digital transformation, (iii) AI-powered proactive cloud managed services covering all aspects of day-to-day cloud maintenance and support, and (iv) IT infrastructure solutions covering on-premise private cloud setups and public cloud integrations, including infrastructure applications such as its Sereno Cloud App360 AI and Data Science Platform, which consists of several core components.

ChowChow Cloud primarily operates in the Asia-Pacific region, with a strong presence in Hong Kong and Singapore. Since 2019, it has expanded its geographical footprint to other jurisdictions in the Asia-Pacific region, including the Philippines, Taiwan, Indonesia, and Australia.

Our Partners, Hank Lo and Gordon Tsang, together with Senior Associate Gary Kwok, acted as Hong Kong legal counsel to the Underwriter in the NYSE American Listing.

Please contact Hank Lo or Gordon Tsang for any enquiries or further information about this transaction.

Stevenson, Wong & Co. acted as the Hong Kong legal adviser to US Tiger Securities, Inc. (the “Lead Underwriters”), the lead underwriters of DarkIris Inc. (NASDAQ: DKI) (“DarkIris”) in their successful listing on the Nasdaq Capital Market on 8 August 2025 (the “Nasdaq Listing”). DarkIris offered a total of 1,500,000 Class A Ordinary Shares, priced at US$4.00 per share. The aggregate gross proceeds from the Offering was US$6 million.

DarkIris is a comprehensive technology enterprise engaged in the development, publishing and operating of mobile digital games via various third-party digital storefronts. Through its subsidiaries in Hong Kong, DarkIris’s activities include game design, programming, graphics, distribution, and operation of mobile games on various platforms. DarkIris leverages (i) the innovative, creative, and technical expertise of the gaming industry communities in Hong Kong and (ii) the multicultural environment and diverse interests of mobile game players in these regions to create and promote a broader array of engaging, immersive, and captivating mobile game genres for a global audience of gamers.

Our Partners, Hank Lo and Gordon Tsang, and Associate Sam Liu, acted as the Hong Kong legal counsel for the Lead Underwriters in the Nasdaq Listing and provided comprehensive Hong Kong legal services.

Please contact Hank Lo or Gordon Tsang for any enquiries or further information about this transaction.

Stevenson, Wong & Co. acted as the Hong Kong legal adviser to Mega Fortune Company Limited (NASDAQ: MGRT) (“MGRT”) in the successful listing on the Nasdaq Capital Market on 16 July 2025 (the “Nasdaq Listing”). MGRT offered a total of 3,750,000 ordinary shares, priced at US$4.00 per share (the “Offering”). The aggregate gross proceeds from the offering was US$15 million.

MGRT is an Internet of Things (“IoT”) solution provider in Hong Kong. Through its operating subsidiary QBS System Limited (“QBS System”), MGRT has specialized in delivering comprehensive IoT solutions and services across various industries. QBS System’s business service portfolio includes the provision of IoT Integration Solution Services, IoT Maintenance and Support services, Business Process Outsourcing services and trading sales. Through its IoT platform, tools and services, QBS System helps enterprises through their digital transformation, launch IoT initiatives, upscale an existing IoT application or integrate any IoT solution with a legacy system to help them become more innovative, effective and productive. MGRT’s vision is to become the preferred choice for IoT solutions for enterprises and projects in the Asia-Pacific region.

Our Partners, Mr. Hank Lo and Mr. Gordon Tsang, acted as the Hong Kong legal counsel for MGRT in the Nasdaq Listing.

Please contact Mr. Hank Lo or Mr. Gordon Tsang for any enquiries or further information about this transaction.