On March 12, 2025, the SEC approved a significant rule change to Nasdaq’s initial listing liquidity requirements (the New Liquidity Rules). These changes make it more challenging for companies seeking to list on the Nasdaq Global Market or Nasdaq Capital Market. However, they do not impact already public companies trading on the OTC market (including Canadian and other foreign public companies) that meet Nasdaq’s trading volume requirements.
Stricter Liquidity Requirements for New Listings and Uplisting Companies
Prior to the New Liquidity Rules, previously issued unrestricted shares that were not held by an officer, director, or 10% shareholder of the company counted as Unrestricted Publicly Held Shares.
The New Liquidity Rules introduce more stringent requirements for companies pursuing an initial public offering (IPO) or uplisting from the OTC market by changing which shares count as Unrestricted Publicly Held Shares:
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Offering Proceeds Requirement: Companies listing on the Nasdaq Global Market or Nasdaq Capital Market in connection with an IPO must now satisfy the applicable minimum “Market Value of Unrestricted Publicly Held Shares” requirement solely from the proceeds of the offering. Companies uplisting to the Nasdaq Global Market or Nasdaq Capital Market from the OTC market using the Public Offering Alternative (defined below) are subject to the same requirement. Previously issued unrestricted shares can no longer be counted toward this requirement.
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Increased Offering Size for Uplisting Companies: Prior to the New Liquidity Rules, if the shares of a company were trading on the OTC market as of the date of application, such shares must have had a minimum average daily trading volume of 2,000 shares over the 30 trading day period prior to listing, with trading occurring on more than half of those 30 days (the Trading Volume Requirement), unless such shares were listed on the Nasdaq in connection with a firm commitment underwritten public offering of at least $4 million (the Public Offering Alternative). Under the New Liquidity Rules, the Public Offering Alternative is amended to increase the size of the offering from $4 million to $8 million for the Nasdaq Global Market and to $5 million for the Nasdaq Capital Market. In addition, the Public Offering Alternative is amended to require companies to satisfy the applicable Market Value of Unrestricted Publicly Held Shares requirement solely from the offering proceeds.
Higher IPO or Public Offering Threshold
The new rules significantly raise the bar for companies trying to list on the Nasdaq through an IPO or an uplisting via the Public Offering Alternative. Companies using the equity standard or market value of listed securities standard for a Nasdaq Capital Market IPO must now raise at least $15 million to meet the Market Value of Unrestricted Publicly Held Shares requirement. Under the net income standard, the threshold is at least $5 million.
Accordingly, we expect that the small IPO market will be significantly impacted, especially if companies are trying to list on the Nasdaq using the equity standard or market value of listed securities standard, as such companies will need to have an initial public offering of at least $15 million. These new rules come amid several changes to rules and policies that have adversely affected small IPOs on the Nasdaq Capital Market or NYSE American.
No Impact on Established Public Companies with Sufficient Trading Volume
While these changes present significant hurdles for companies looking to go public on the Nasdaq, they do not affect companies that are already trading on the OTC market (including Canadian or other foreign public companies) as long as:
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they meet the Trading Volume Requirement of 2,000 shares per day over a 30-day period; and
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they are not conducting an initial public offering in connection with their Nasdaq listing.
Effective Date
The new rules will be operative 30 days after the approval by the SEC. Accordingly, any company listing on or after April 11, 2025, will be subject to the new rules.
These new rules demand more careful planning and capital-raising strategies for companies considering a Nasdaq listing. If your company is affected, now is the time to evaluate whether it meets the revised requirements or needs to adjust its listing approach.