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On May 14, 2026, the SEC approved a new Nasdaq rule that raises the bar for China-based companies seeking to list in the United States. The rule, adopted through SEC Release No. 34-105494 and set to take effect on June 13, 2026, adds a separate layer of initial listing requirements on top of Nasdaq's existing standards. It applies to IPOs, business combinations (including de-SPAC transactions), direct listings, and transfers from OTC markets or other exchanges.
The rule does not apply retroactively to companies already listed on Nasdaq. But for anyone planning a new Nasdaq listing on or after June 13, or structuring a transaction that will result in a fresh initial-listing review, the new standards are live and need to be planned around.
Nasdaq filed the original proposal (File No. SR-NASDAQ-2025-069) with the SEC on September 4, 2025. The proposal went through the normal notice-and-comment process under Section 19(b)(1) of the Exchange Act and Rule 19b-4, which requires self-regulatory organizations like Nasdaq to obtain SEC approval before rule changes take effect.
The process was not quick. The SEC extended its review period, instituted formal proceedings to consider approval or disapproval, and received two more rounds of amendments from Nasdaq before finally issuing its approval order. The key amendment was Amendment No. 3, filed May 1, 2026, which tightened the direct-listing restrictions further by barring China-based companies from listing on the Nasdaq Global Market, not just the Nasdaq Capital Market as the earlier drafts had proposed. The SEC approved the rule as modified by Amendment No. 3 on May 14, 2026.
The rule change amends Nasdaq Rule 5210 by adding a new subsection 5210(l) specifically for China-based issuers. It is a listing-standards change, not a revision to SEC disclosure forms or federal securities statutes.
This is the threshold question, and the answer is broader than many assume. Nasdaq will treat a company as a "China-based Issuer" under the new rule if it is:
● headquartered in China (including the Hong Kong SAR or Macau SAR),
● incorporated in China (including Hong Kong or Macau), or
● determined by Nasdaq to have its business principally administered in one of those jurisdictions.
The third prong is the most fact-intensive. Nasdaq will assess seven factors to determine whether a company's business is principally administered in China:
● Where the company's books and records are located
● Whether at least 50% of assets are located in China
● Whether at least 50% of revenues are derived from China
● Whether at least 50% of directors are citizens of, or reside in, China
● Whether at least 50% of officers are citizens of, or reside in, China
● Whether at least 50% of employees are based in China
● Whether the company is controlled by, or under common control with, persons or entities that are citizens of, reside in, or are headquartered, incorporated, or principally administered in China
Nasdaq has stated it will apply these factors holistically rather than as a hard checklist. Satisfying one factor alone does not automatically trigger the rule, but companies with multiple strong connections to China should assume the rule applies until they can demonstrate otherwise.
Two important scope notes: the release’s definition expressly covers China, Hong Kong, and Macau; it does not expressly include any other jurisdiction. The test is also not based on auditor location; that issue is handled separately under Nasdaq’s existing restrictive-market rules. Cayman Islands or BVI companies with substantial China operations, management, and personnel should not assume they fall outside the rule solely because of their place of incorporation.
New Rule 5210(l) applies differently depending on how a company is coming to Nasdaq. There are four paths, each with its own added threshold.
A China-based company conducting an IPO must sell securities through a U.S. firm commitment underwritten offering to Public Holders that generates at least $25 million in gross proceeds for the company. This is a hard floor, not a float or market-cap test. "Public Holders" is defined under Nasdaq Rule 5005(a)(36) to exclude insiders and holders of more than 10% of outstanding shares, so the $25 million must come from genuine outside investors in a fully underwritten deal.
A China-based company listing in connection with a business combination under Nasdaq Rule 5110(a) or IM-5101-2 must have at least $25 million of Market Value of Unrestricted Publicly Held Shares after the transaction closes. "Unrestricted" means shares not subject to resale restrictions, which are the shares that actually contribute to trading liquidity at listing. This threshold directly captures de-SPAC transactions: a Nasdaq-listed SPAC that merges with a China-based target will need to demonstrate this $25 million freely tradable public-float value when Nasdaq reviews the combined company's initial listing. If the combined company falls short, Nasdaq's existing SPAC rule (IM-5101-2) triggers a Staff Delisting Determination.
China-based companies lose two of Nasdaq's three markets for direct listings. Under the approved rule, a China-based issuer may not list on the Nasdaq Global Market or the Nasdaq Capital Market through a direct listing. The only remaining direct-listing path is the Nasdaq Global Select Market, subject to meeting that market's applicable standards and the requirements of IM-5315-1. The Global Select threshold for a direct listing without prior trading requires at least $250 million of Market Value of Publicly Held Shares and at least $100 million of Market Value of Unrestricted Publicly Held Shares. That is a meaningfully higher bar than what the Global Market and Capital Market would have required.
A China-based company already trading on the OTC market or listed on another U.S. national securities exchange must satisfy two conditions to transfer to Nasdaq: it must have traded on the other market for at least one year, and it must have at least $25 million of Market Value of Unrestricted Publicly Held Shares. Companies coming from OTC must also still meet Nasdaq's existing minimum average daily trading volume requirements. Unlike Nasdaq's current restrictive-market rules, the new China rule does not include an alternative path that would allow listing if offering proceeds equal at least 25% of post-offering Market Value of Listed Securities.
Already-listed Nasdaq companies. The new rule is framed as an additional initial listing standard. Companies listed on Nasdaq before June 13, 2026 are not required to requalify under Rule 5210(l) just to remain listed. That applies to U.S. domestic issuers, FPIs, and already-listed China-based operating companies, as long as they are not entering a transaction that triggers a fresh initial-listing review.
Companies in change-of-control transactions. Nasdaq Rule 5110(a) requires a listed company to apply for initial listing if it combines with a non-Nasdaq entity in a transaction resulting in a change of control. If the resulting combined entity is China-based under Rule 5210(l), the new standards apply at that point. So an already-listed company is not insulated if it is structuring a transformative acquisition.
China-based IPO and direct-listing candidates. These are the most directly affected. The $25 million firm-commitment IPO floor and the direct-listing market restrictions take effect for listings on or after June 13. Deal teams working on China-based IPOs or direct listings that are not yet closed need to assess whether they will hit the effective date and plan accordingly.
SPAC sponsors with China-based targets. The business-combination threshold is squarely aimed at de-SPAC transactions. A Nasdaq-listed SPAC that has signed or is negotiating a deal with a China-based target should model whether the combined company will satisfy the $25 million Market Value of Unrestricted Publicly Held Shares requirement at closing. Trust redemptions and post-merger PIPE structure will matter here.
OTC and cross-listed companies seeking to uplist. China-based companies currently trading on OTC markets or another exchange that have been planning a Nasdaq transfer need to add the one-year seasoning requirement and the $25 million freely tradable public-float test to their timeline and readiness checklist.
Foreign private issuers. FPI status provides no exemption. The rule's trigger is geographic and operational, not registration-form-based. An FPI with substantial China connections can fall inside Rule 5210(l), and an FPI with no meaningful China presence falls outside it. Each company needs to run the facts-and-circumstances analysis on its own.
A few gaps are worth noting for anyone tracking this rule closely.
First, the SEC-issued version of Release No. 34-105494 solicits comments on Amendment No. 3 but does not state the Federal Register publication date for the approval order. The comment deadline for that amendment is 21 days after Federal Register publication, and that date has not yet been confirmed as of this writing.
Second, the rule does not address IM-5315-2 direct listings that include a capital raise. The release discusses IM-5315-1 (the no-sustained-trading path) but does not provide a separate analysis of IM-5315-2. Whether the direct-listing bar extends to that path as well is not explicitly resolved in the release text.
Third, the holistic nature of the "principally administered" test means companies with mixed facts will face a judgment call from Nasdaq staff. The release confirms that Nasdaq may request additional information during the application process if public filings do not contain enough to assess the coverage factors. Companies with Cayman or offshore holding structures and significant China operations should expect that inquiry and prepare for it.
The new rule narrows the Nasdaq listing window for China-based companies starting June 13, 2026. The $25 million threshold applies across IPOs, de-SPAC combinations, and OTC transfers. Direct-listing access shrinks to Global Select only. And the coverage definition is broad enough to reach Cayman-structured operating businesses with meaningful China connections.
For issuers, bankers, counsel, and SPAC sponsors working on transactions that will close on or after that date, the practical checklist is straightforward: determine whether the issuer is China-based under the seven-factor test, identify which listing path applies, confirm the applicable threshold, and build that analysis into the deal timeline early.
Companies that are already listed on Nasdaq and not in the middle of a qualifying transaction have no immediate compliance obligation. But those planning any kind of transaction that could trigger a fresh initial-listing review need to treat the effective date as a live deadline.
Source
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