On December 12, 2024, the Nasdaq Stock Market LLC ("Nasdaq") filed a proposed rule change with the United States Securities and Exchange Commission (the "SEC") to modify Nasdaq Listing Rules 5405 and 5505 (the "Proposal").1 The Proposal aims to make Nasdaq's initial listing liquidity requirements more rigorous for issuers applying to list or uplist their securities on the Nasdaq Global Market or Nasdaq Capital Market in connection with a public offering. The Proposal seeks to amend Nasdaq Listing Rules 5405 and 5505 by:
(i) requiring a company listing on the Nasdaq Global Market or Nasdaq Capital Market in connection with an initial public offering ("IPO"), including through the issuance of American Depository Receipts ("ADRs"), to satisfy the applicable Market Value of Unrestricted Publicly Held Shares ("MVUPHS") requirement solely with the public offering proceeds;
(ii) requiring a company uplisting to the Nasdaq Global Market or Nasdaq Capital Market from the U.S. over-the-counter ("OTC") market in conjunction with a public offering to satisfy the applicable MVUPHS requirement solely with the public offering proceeds; and
(iii) increasing the minimum amount required to uplist from the OTC market in connection with a firm commitment underwritten public offering,
(collectively, the "New Listing Rules").
On March 12, 2025, the SEC approved the Proposal, and the New Listing Rules will come into effect on April 11, 2025.
This bulletin discusses the New Listing Rules and provides information for issuers looking to list or uplist their securities on the Nasdaq Global Market or Nasdaq Capital Market in connection with a public offering.
Background
An issuer applying to list or uplist on the Nasdaq Global Market or Nasdaq Capital Market in connection with a public offering must comply with Nasdaq Listing Rule 5404 or 5505. Under Rules 5404(b) and 5505(b), an issuer must meet a minimum raise amount from a public offering to satisfy the applicable MVUPHS requirement. The MVUPHS requirement is designed to ensure there is sufficient liquidity to provide price discovery and support an efficient and orderly market for the issuer's listed securities.2
The MVUPHS requirement is satisfied through the value of a company's unrestricted publicly held shares, which prior to the Proposal, included:
(i) shares sold in the public offering (the "Public Offering Shares"); and
(ii) shares that are not held by an officer, director, or 10% shareholder of the issuer, which are not subject to resale restrictions, and were previously issued shares registered for resale (the "Resale Shares").
Before the Proposal, the Public Offering Shares and the Resale Shares both qualified as unrestricted publicly held shares and collectively went towards satisfying the MVUPHS requirement. However, effective April 11, 2025, Resale Shares will be excluded from the MVUPHS calculation under the New Listing Rules.3
Overview of the New Listing Rules
On April 11, 2025, the New Listing Rules come into effect, with the most notable change being a restriction on issuers to satisfy the MVUPHS requirement solely from Public Offering Shares.
The requisite minimum raise amount to satisfy the MVUPHS requirement varies depending on whether the issuer is applying to Nasdaq Global Market or Nasdaq Capital Market and the Initial Listing Standard the issuer is applying under. These variations under Rules 5405 and 5505 are summarized below and reflect the amendments from the Proposal.
Initial Listing Requirements
Rule 5405(b) – Nasdaq Global Market: To qualify for initial listing on the Nasdaq Global Market, an issuer must meet the requirements of one of the Initial Listing Standards under Rule 5405(b), and satisfy the following applicable MVUPHS requirement:
- Income Standard: MVUPHS of at least US$8 million for a company listing in connection with an IPO, including through the issuance of ADRs, this requirement must be satisfied from the offering proceeds;
- Equity Standard: MVUPHS of at least US$18 million for a company listing in connection with an IPO, including through the issuance of ADRs, this requirement must be satisfied from the offering proceeds; or
- Market Value Standard or Total Assets/Total Revenue Standard: MVUPHS of at least US$20 million for a company listing in connection with an IPO, including through the issuance of ADRs, this requirement must be satisfied from the offering proceeds.4
Rule 5505(b) – Nasdaq Capital Market: To qualify for initial listing on the Nasdaq Capital Market, an issuer must meet one of the Initial Listing Standards under Rule 5505(b), and satisfy the following applicable MVUPHS requirement:
- Equity Standard: MVUPHS of at least US$15 million for a company listing in connection with an IPO, including through the issuance of ADRs, this requirement must be satisfied from the offering proceeds;
- Market Value of Listed Securities Standard: MVUPHS of at least US$15 million for a company listing in connection with an IPO, including through the issuance of ADRs, this requirement must be satisfied from the offering proceeds; or
- Net Income Standard: MVUPHS of at least US$5 million for a company listing in connection with an IPO, including through the issuance of ADRs, this requirement must be satisfied from the offering proceeds.5
In summary, the Proposal amends Rules 5405(b) and 5505(b) by excluding the Resale Shares from the MVUPHS calculation, requiring issuers to satisfy the requirement solely from the offering proceeds.
OTC Uplisting Requirements
Alternatively, if an issuer currently trading on the OTC market wishes to uplist to either the Nasdaq Global Market or Nasdaq Capital Market in connection with a public offering, they must satisfy Rule 5405(a)(4) or Rule 5505(a)(5), respectively, as well as one of the Initial Listing Standards in Rule 5405(b) or Rule 5505(b), as applicable.
The Proposal amends Rules 5405(a)(4) and 5505(a)(5) to require an issuer uplisting from the OTC market that does not satisfy the minimum average daily trading volume requirements to list on the Nasdaq Global Market or Nasdaq Capital Market in connection with a firm commitment underwritten public offering to satisfy the applicable MVUPHS requirement with the offering proceeds. Additionally, the New Listing Rules increase the public offering amount from US$4 million to US$8 million for the Nasdaq Global Market and from US$4 million to US$5 million for the Nasdaq Capital Market to reflect the minimum MVUPHS requirement for each market. The amendments to Rules 5405(a)(4) and 5505(a)(5) are reflected below.
Rule 5405(a)(4) — Nasdaq Global Market: To uplist from the OTC market to the Nasdaq Global Market, an issuer must meet the minimum average daily volume on the OTC market of 2,000 shares over the past 30 trading day period prior to listing (including trading volume of the underlying security on the primary market with respect to an ADR), with trading occurring on more than 50% of those 30 days (the "ADV Requirement"), unless such security is listed in connection with a firm commitment underwritten public offering of at least US$8 million and the issuer satisfies the applicable MVUPHS requirement of one of the Initial Listing Standards in Rule 5405(b) from the offering proceeds.
Rule 5505(a)(5) – Nasdaq Capital Market: To uplist from the OTC market to the Nasdaq Capital Market, an issuer must meet the ADV Requirement, or list in connection with a firm commitment underwritten public offering of at least US$5 million and the issuer satisfies the applicable MVUPHS requirement of one of the Initial Listing Standards in Rule 5505(b) from the offering proceeds.
In summary, the New Listing Rules raise the firm commitment underwritten public offering amounts for both Nasdaq Global Market and Nasdaq Capital Market and require the applicable MVUPHS requirement to be satisfied solely from the offering proceeds.
Please note that if the issuer currently trading on the OTC market satisfies the ADV Requirement, then there is no minimum public offering size, however, the issuer must still meet the applicable MVUPHS requirement of one of the Initial Listing Standards in Rule 5405(b) or 5505(b), as applicable, under the old rules, which allows the issuer to use the unrestricted shares currently in its public float and any Resale Shares to count towards the MVUPHS requirement.
Nasdaq's Rationale for the New Listing Rules
As discussed above, prior to the Proposal, the Public Offering Shares and the Resale Shares collectively counted as unrestricted publicly held shares that could satisfy the applicable MVUPHS requirement.
Nasdaq observed that issuers meeting the MVUPHS requirement with Resale Shares experienced higher volatility on the date of listing than issuers who met the MVUPHS requirement with only the offering proceeds.6 Nasdaq believes that Resale Shares may not contribute to liquidity to the same degree as the Public Offering Shares.7 In Nasdaq's opinion, excluding the Resale Shares from the calculation for the applicable MVUPHS requirement should enable Nasdaq to better determine whether a security has adequate liquidity, and is therefore suitable for listing and trading on the Nasdaq Global Market or Nasdaq Capital Market.8
Key Takeaways
In summary, the New Listing Rules require an issuer listing on the Nasdaq Global Market or Nasdaq Capital Market in connection with an IPO to satisfy the applicable minimum MVUPHS standard with only the offering proceeds. Additionally, the New Listing Rules increase the minimum offering amounts to uplist from the OTC market where the issuer does not meet the ADV Requirement and requires such listing in connection with an underwritten public offering to similarly satisfy the applicable MVUPHS requirement with only the offering proceeds.
While these changes to Nasdaq Listing Rules 5405 and 5505 come as an effort to ensure an adequate level of liquidity exists for securities listing on the Nasdaq Global Market or Nasdaq Capital Market, it is a higher set of standards to satisfy, which may make it more difficult for issuers looking to list securities on such markets.
Footnotes
1 Securities and Exchange Commission, Release No. 34-102622 (March 12, 2025), at page 1.
2 Securities and Exchange Commission, Release No. 34-101978 (December 19, 2024), at page 3.
3 Supra note 1, at page 3.
4 See Nasdaq Listing Rule 5405(b).
5 See Nasdaq Listing Rule 5505(b).
6 Supra note 1, at pages 6-7.
7 Ibid at page 3.
8 Ibid at page 7.
The foregoing provides only an overview and does not constitute legal advice. Readers are cautioned against making any decisions based on this material alone. Rather, specific legal advice should be obtained.
© McMillan LLP 2025
