Self-Regulatory Organizations; The Nasdaq Stock Market LLC; Order Instituting Proceedings To Determine Whether To Approve or Disapprove a Proposed Rule Change, as Modified by Amendment No. 1, To Adopt Additional Initial Listing Criteria for Companies Primarily Operating in China

<NOTICE> SECURITIES AND EXCHANGE COMMISSION <DEPDOC>[Release No. 34-104456; File No. SR-NASDAQ-2025-069]</DEPDOC> <SUBJECT>Self-Regulatory Organizations; The Nasdaq Stock Market LLC; Order Instituting Proceedings To Determine Whether To Approve or Disapprove a Proposed Rule Change, as Modified by Amendment No. 1, To Adopt Additional Initial Listing Criteria for Companies Primarily Operating in China</SUBJECT> <DATE>December 18, 2025.</DATE> <HD SOURCE="HD1">I. Introduction</HD> On September 4, 2025, the Nasdaq Stock Market LLC (“Exchange” or “Nasdaq”) filed with the Securities and Exchange Commission (“Commission”), pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (“Act”)  <SU>1</SU> <FTREF/> and Rule 19b-4 thereunder, <SU>2</SU> <FTREF/> a proposed rule change to adopt additional initial listing criteria for companies primarily operating in the People's Republic of China (“China”), including the Hong Kong Special Administrative Region (“Hong Kong”) and the Macau Special Administrative Region (“Macau”). On September 12, 2025, the Exchange filed Amendment No. 1 to the proposed rule change, which replaced and superseded the original filing in its entirety. The proposed rule change, as modified by Amendment No. 1, was published for comment in the <E T="04">Federal Register</E> on September 19, 2025. <SU>3</SU> <FTREF/> On September 25, 2025, the Commission designated a longer period within which to take action on the proposed rule change. <SU>4</SU> <FTREF/> The Commission is instituting proceedings pursuant to Section 19(b)(2)(B) of the Act  <SU>5</SU> <FTREF/> to determine whether to approve or disapprove the proposed rule change, as modified by Amendment No. 1. <FTNT> <SU>1</SU>  15 U.S.C. 78s(b)(1). </FTNT> <FTNT> <SU>2</SU>  17 CFR 240.19b-4. </FTNT> <FTNT> <SU>3</SU>   <E T="03">See</E> Securities Exchange Act Release No. 103979 (Sept. 16, 2025), 90 FR 45298 (“Notice”). Comments received on the proposed rule change are available at: <E T="03">https://www.sec.gov/comments/sr-nasdaq-2025-069/srnasdaq2025069.htm.</E> </FTNT> <FTNT> <SU>4</SU>   <E T="03">See</E> Securities Exchange Act Release No. 104058, 90 FR 46973 (Sept. 30, 2025). The Commission designated December 18, 2025, as the date by which the Commission should approve, disapprove, or institute proceedings to determine whether to disapprove the proposed rule change. <E T="03">See id.</E> </FTNT> <FTNT> <SU>5</SU>  15 U.S.C. 78s(b)(2)(B). </FTNT> <HD SOURCE="HD1">II. Description of the Proposed Rule Change, as Modified by Amendment No. 1</HD> As described in more detail in the Notice, <SU>6</SU> <FTREF/> the Exchange states that, since 2020, there has been a sharp increase in the number of companies from China seeking to list on U.S. national securities exchanges, such as Nasdaq, with a record number of Chinese companies having sought a U.S. listing in 2024 and a continuation of that pace in 2025. <SU>7</SU> <FTREF/> The Exchange states that along with increasing U.S. investor interest in Chinese companies, U.S. policymakers and regulatory agencies have voiced concerns regarding the listing of Chinese companies on U.S. national securities exchanges, citing risks to investors and national security. <SU>8</SU> <FTREF/> In response, efforts have been made by Congress, <SU>9</SU> <FTREF/> as well as by Nasdaq, <SU>10</SU> <FTREF/> to address these concerns on a broader level. <SU>11</SU> <FTREF/> <FTNT> <SU>6</SU>   <E T="03">See</E> note 3. </FTNT> <FTNT> <SU>7</SU>   <E T="03">See id.</E> at 45299. </FTNT> <FTNT> <SU>8</SU>   <E T="03">See id.</E> In particular, the Exchange states that Chinese companies present unique risks to U.S. investors “due to barriers on access to information and limitations on the ability of U.S. regulators to conduct investigations or enforce actions against the company and non-U.S. persons, which create concerns about the accuracy of disclosures, accountability and access to information.” <E T="03">Id.</E> at 45300. </FTNT> <FTNT> <SU>9</SU>   <E T="03">See id.</E> at 45299 (citing as an example Congress's passage of the Holding Foreign Companies Accountable Act in December 2020). </FTNT> <FTNT> <SU>10</SU>   <E T="03">See, e.g.,</E> Securities Exchange Act Release No. 93256 (Oct. 4, 2021), 86 FR 56338 (Oct. 8, 2021) (NASDAQ-2021-007) (Order Granting Approval of a Proposed Rule Change To Adopt Additional Initial Listing Criteria for Companies Primarily Operating in Jurisdictions That Do Not Provide the PCAOB With the Ability To Inspect Public Accounting Firms). </FTNT> <FTNT> <SU>11</SU>   <E T="03">See</E> Notice, <E T="03">supra</E> note 3, at 45299. </FTNT> The Exchange states that it has also identified concerns with the trading of companies headquartered, incorporated, or whose business is principally administered in China. <SU>12</SU> <FTREF/> Specifically, the Exchange states that “nearly 70% of the matters that Nasdaq has referred to the SEC or FINRA since August 2022 have been related to trading in Chinese companies, while Chinese companies represent less than 10% of all Nasdaq listings.”  <SU>13</SU> <FTREF/> The Exchange also states that Chinese companies that list on Nasdaq through an initial public offering (“IPO”) or business combination with certain characteristics, such as a small offering size or a low public float percentage, may not develop sufficient public float, investor base, and trading interest to provide the liquidity necessary to promote fair and orderly trading, and that as a result their securities may be more susceptible to manipulation by bad actors. <SU>14</SU> <FTREF/> Moreover, the Exchange states that challenges related to the ability of “U.S. authorities in bringing or enforcing actions against entities and individuals involved in potentially manipulative trading activities” in such cases further compounds the risk to investors. <SU>15</SU> <FTREF/> Accordingly, the Exchange proposes to enhance its initial listing standards by adopting stricter requirements for companies based in China (including Hong Kong and Macau). <SU>16</SU> <FTREF/> <FTNT> <SU>12</SU>   <E T="03">See id.</E> </FTNT> <FTNT> <SU>13</SU>   <E T="03">Id.</E> </FTNT> <FTNT> <SU>14</SU>   <E T="03">See id.</E> </FTNT> <FTNT> <SU>15</SU>   <E T="03">Id.</E> </FTNT> <FTNT> <SU>16</SU>   <E T="03">See id.</E> The Exchange states that a company that falls under proposed Nasdaq Rule 5210(l) would also need to comply with all other applicable listing requirements. <E T="03">See id.</E> at 45300. </FTNT> <HD SOURCE="HD2">A. Identification of Companies Based in China, Hong Kong, and Macau</HD> The Exchange proposes to adopt listing requirements in Nasdaq Rule 5210(l)  <SU>17</SU> <FTREF/> that would apply to a company that is headquartered or incorporated in China (including Hong Kong and Macau) or whose business is principally administered in one of those jurisdictions (“China-based company”). The Exchange would determine where a company is principally administered based on an analysis of the facts and circumstances, <SU>18</SU> <FTREF/> including if: (1) the company's books and records are located in that jurisdiction; (2) at least 50% of the company's assets are located in such jurisdiction; (3) at least 50% of the company's revenues are derived from such jurisdiction; (4) at least 50% of the company's directors are citizens of, or reside in, such jurisdiction; (5) at least 50% of the company's officers are citizens of, or reside in, such jurisdiction; (6) at least 50% of the company's employees are based in such jurisdiction; or (7) the company is controlled by, or under common control with, one or more persons or entities that are citizens of, reside in, or whose business is headquartered, incorporated, or principally administered in such jurisdiction. <SU>19</SU> <FTREF/> <FTNT> <SU>17</SU>  The Exchange also proposes to renumber the remainder of Nasdaq Rule 5210 as subsections (m) and (n). </FTNT> <FTNT> <SU>18</SU>  The Exchange states that it would consider the proposed “elements holistically, recognizing that there are various factors to consider when determining where a company conducts its principal business activities.” <E T="03">Id.</E> </FTNT> <FTNT> <SU>19</SU>   <E T="03">See</E> proposed Nasdaq Rule 5210(l). The Exchange states that several of the factors in proposed Nasdaq Rule 5210(l) are used in its rules to determine whether a company's business is principally administered in a “Restrictive Market.” <E T="03">See</E> Notice, <E T="03">supra</E> note 3, at 45300, n.11; Nasdaq Rule 5005(a)(37) (defining “Restrictive Market” to mean “a jurisdiction that does not provide the Public Company Accounting Oversight Board with access to conduct inspections of public accounting firms that audit Nasdaq-listed companies. A Company's business will be considered to be principally administered in a Restrictive Market if: (i) the Company's books and records are located in that jurisdiction; (ii) at least 50% of the Company's assets are located in such jurisdiction; or (iii) at least 50% of the Company's revenues are derived from such jurisdiction.”). </FTNT> <HD SOURCE="HD2">B. Minimum $25 Million Offering Size for an IPO</HD> The Exchange proposes to require that, in the case of an IPO, a China-based company must offer a minimum amount of securities in a Firm Commitment Offering  <SU>20</SU> <FTREF/> in the U.S. to Public Holders  <SU>21</SU> <FTREF/> that would result in gross proceeds to the company of at least $25 million. <SU>22</SU> <FTREF/> The Exchange states that it has observed that China-based companies listing on Nasdaq in connection with an IPO with an offering size below $25 million have a higher r ━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━ Preview showing 10k of 30k characters. Full document text is stored and available for version comparison. ━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━