New Listing Rule Gives Nasdaq Authority to Deny Initial Listings

The Nasdaq Stock Market LLC ("Nasdaq") filed a proposed rule change with the SEC on December 12, 2025, requesting authorization to deny initial listing to companies, even where the applicant meets all stated listing requirements. The proposal comes after Nasdaq observed problematic or unusual trading in certain listed companies and the SEC imposed temporary trading suspensions on several listed securities based on concerns about social media pump-and-dump schemes. The SEC on December 19, 2025, confirmed the immediate effectiveness of the rule proposal.

Background and Rationale

According to the Nasdaq proposal, the SEC’s suspension orders¹ have generally been based on activities of unaffiliated third parties, without any allegations that the companies themselves or persons associated with the companies were involved in the trading schemes. In most cases, the affected securities were listed for less than one year.

Under the current listing rules, Nasdaq does not have the authority to deny initial listings based on the actions of unaffiliated third parties. Nasdaq’s existing listing requirements — which the companies that were subject to the SEC’s suspension orders satisfied both at the time of listing and on an ongoing basis — are based on the characteristics of the company itself and the securities it seeks to list. Nasdaq Listing Rule 5101 (Nasdaq’s Regulatory Authority), in conjunction with Listing Rule IM-5101-1 (Use of Discretionary Authority), provides Nasdaq 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. But those rules do not allow denial of a listing based on the potential that unaffiliated third parties will engage in misconduct affecting a company's securities.

Similarly, Nasdaq rules do not presently allow it to deny listing to a company based on its review of trading patterns of other companies with similar characteristics or based on considerations related to the company's advisors.

Factors for Exercising Discretion

To address the issues identified by Nasdaq, new Listing Rule IM-5101-3 provides Nasdaq with authority under Rule 5101 to deny initial listing based on factors that could make the security in question susceptible to manipulation based on the concerns that Nasdaq and other regulators have identified with similarly situated companies. The new rule includes a series of non-exclusive factors that Nasdaq will consider in determining whether to apply this discretion. These factors include:

Geographic and Jurisdictional Considerations

Where the company is located, including the availability of legal remedies to U.S. shareholders in that jurisdiction, the existence of blocking statutes in the jurisdiction that would prevent application of U.S. law, 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. A similar analysis applies to any person or entity that exercises substantial influence over the company.

Liquidity and Distribution Concerns

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.

Advisor-related Factors

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 has been reviewed by applicable regulators and, if so, the results of those reviews;
• if the company's advisor is a new entity, whether the advisor's principals were involved with other firms with a regulatory history;
• whether any of the advisors were involved in prior transactions where the securities became subject to a pattern of concerning or volatile trading.

Management Experience

Whether the company's management and board have experience or familiarity with U.S. public company requirements, including regulatory and reporting requirements under Nasdaq rules and federal securities laws.

Regulatory History

Whether there are any FINRA, SEC or other regulatory referrals related to the company or its advisors that can be included in the record of the matter and, if applicable, the results of those referrals.

Financial Condition

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.

Other Integrity Concerns

Whether there are other factors that raise concerns about the integrity of the company's board, management, significant shareholders or advisors.

Procedural Requirements

Under the new rule, if Nasdaq denies an initial listing, Nasdaq Staff will issue a written determination describing the basis for its decision. The company may seek review by a Hearings Panel within seven calendar days of when its application is denied, as set forth in Listing Rule 5815.

Relationship to September 2025 Proposals

Nasdaq proposed certain changes to the listing requirements in September 2025, but those changes remain pending. The September proposals, discussed in a Dechert OnPoint,² included several significant changes to initial and continued listing standards:

• A requirement to raise the minimum Market Value of Unrestricted Publicly Held Shares ("MVUPHS") to US$15 million for companies listing under the net income standard for both the Nasdaq Global Market and the Nasdaq Capital Market, up from US$8 million and US$5 million, respectively.
• An accelerated suspension and delisting process for companies with a Market Value of Listed Securities of less than US$5 million that become noncompliant with a quantitative continued listing requirement, eliminating the typical 180-day grace period.
• Heightened listing standards for China-based companies, including a minimum of US$25 million in public offering proceeds for IPOs and a minimum MVUPHS of at least US$25 million following a de-SPAC transaction.

Nasdaq determined that additional rules beyond the September proposals were necessary to address the concerns of pump-and-dump schemes affecting newly listed companies. For example, Nasdaq may identify similarities between companies seeking initial listing and the advisors to the companies that are the subject of the SEC’s suspension orders (including auditors, underwriters, law firms, brokers, clearing firms or other professional service providers).

Takeaways

The proposed rule change is immediately effective, and Nasdaq proposes to apply the rule to all companies currently in the application process. However, at any time until February 10, 2026, the SEC can summarily temporarily suspend the rule change if it appears to the SEC that doing so is necessary or appropriate in the public interest or for the protection of investors.

By receiving the authority to exercise discretion to deny initial listings in this manner, Nasdaq believes it can better address situations in which a company satisfies Nasdaq's listing requirements, but has characteristics similar to other companies' securities where trading problems were observed and could make the company susceptible to manipulation. The rule change will also give Nasdaq the authority to consider the involvement of advisors to the company and gatekeepers in other transactions that had problematic or unusual trading, and to take action to deny initial listing to a company involved with these entities.

The new discretionary authority represents a significant expansion of Nasdaq's gatekeeping powers and, together with the pending September proposals to raise quantitative listing standards, signals Nasdaq's comprehensive effort to address concerns about market manipulation and problematic trading in newly listed securities, particularly those involving smaller companies and foreign issuers.