Q&A: Why Nasdaq is Proposing Listing Standards Changes

Nasdaq announced today that it is proposing further enhancements to its listing standards designed to address key liquidity and trading concerns of companies in today’s U.S. market environment.

These changes build on Nasdaq’s history of balancing capital formation and market access while maintaining investor protection and upholding fair and orderly markets.

John Zecca, Nasdaq’s Executive Vice President and Global Chief Legal, Risk, & Regulatory Officer, sat down with the Nasdaq Newsroom to discuss these proposed listings standard changes and the collective action required across the public sector and regulators to further support the listing environment.

Q&A with John Zecca, Nasdaq’s Executive Vice President and Global Chief Legal, Risk & Regulatory Officer:

Nasdaq Newsroom: Nasdaq is introducing significant proposed changes to its listing standards. What were the key market behaviors or trends that prompted this initiative, and how does it build on Nasdaq’s prior reforms?

John Zecca: Investor protection and market integrity are central to Nasdaq’s mission. Our changes are meant to reinforce our long-standing commitment to capital formation while ensuring investor protection and upholding market integrity. What we are proposing today are further enhancements to Nasdaq’s listing standards designed to address key liquidity and trading concerns of companies in today’s environment. This includes updating and introducing tighter limits for certain company’s minimum offering size and capital raise during IPOs. Also, we're introducing stricter delisting procedures for companies failing to meet Nasdaq’s continued listing standards.

The revised standards include three main proposed updates:

A $15 million minimum market value of publicly held shares applicable to new listings, including IPOs, coming onto the market under our net income standard. Secondly, a proposal to accelerate the process for suspending and delisting companies that have a continued listing compliance deficiency and have a market value of Listed Securities below $5 million. The third proposal is a $25 million minimum public offering proceeds requirement for new listings of companies principally operating in China.

In terms of how these fit in with what we have done in the past, we have continuously looked at our listing standards and worked on how we should be updating them and making sure that they're addressing any emerging trends in the market.

One of the things we have been looking at is some of the extreme volatility and potential trading market manipulation that has been observed within our U.S. markets, especially with respect to smaller companies that are principally operating in China. These are situations in which cross-market trading activities are overseen by U.S. and foreign regulators that have direct oversight responsibilities over these types of activities, but we here at Nasdaq have been reviewing the matter proactively and have been thinking about enhancing our listing standards where applicable and appropriate.

So for instance, the $25 million minimum public offering proceeds requirement is very similar to a set of rules that we had starting back in May 2020. Nasdaq adopted requirements after SEC approval that applied to IPOs coming out of restrictive markets, mainly from China and Hong Kong. Those rules, back in the day, required companies to have a minimum offering size of at least $25 million or offer at least 25% of the value of their overall securities to the U.S. public. Today we are proposing reinstating that rule in a very similar context.

Nasdaq Newsroom: One of the more notable changes affects companies headquartered in China. Can you speak to the rationale behind this decision and how Nasdaq is balancing regulatory vigilance with global market inclusivity?

John Zecca: When we looked at some of the potential trends driving extreme volatility and potential trading market manipulation in the capital markets, we have noticed that a significant portion of the securities affected by that trading are issued by companies whose business is principally operating in China. We have been looking at this area carefully and also with respect to some of the more recent meme-stock like activities that have been tied to social media.

That's one of the reasons why we are focused on making adjustments to help provide a more sufficient public float and create a broader investor base. This then leads to greater trading interest that can provide the depth and liquidity necessary to promote fair and orderly trading.

Nasdaq Newsroom: Nasdaq has emphasized that market integrity is a shared responsibility. What kind of collaboration or response are you hoping to see from other regulators, exchanges, and market participants following this rollout?

John Zecca: We operate in a very complex and broad financial ecosystem, and so every player and participant has a responsibility and an obligation to do what is right here. These enhancements reflect our ongoing commitment to evolve our standards in step with market realities and to lead by example in promoting fair and orderly markets. True market integrity requires a collective, proactive effort from the entire industry, especially when it comes to cross-market trading activities.

Certainly, the statutory regulators of both the U.S. and other jurisdictions have the primary responsibility for enforcement, and different organizations like FINRA and exchanges also have a role to play. We hope that taking action in areas that we have control over helps other players and other regulators also take proactive action.

Our proposed rule changes are just one example of our dedication to proactively addressing these types of new challenges and strengthening safeguards for investors in order to create confidence in our markets.

Nasdaq Newsroom: Nasdaq has made a number of referrals to FINRA and the SEC since 2022. What does this enforcement activity signal about Nasdaq’s role in the broader regulatory ecosystem?

John Zecca: We have been surveilling trading activities in this area and have referred numerous cases to FINRA and the SEC for further investigation and action. We continue to collaborate closely with them as well as other enforcement authorities with primary cross-market oversight to strengthen the overall market's oversight.

We certainly believe there is more that different players can do here to address these issues. The overall market integrity is dependent on responsibilities across the entire market ecosystem, including regulators and enforcement agencies who have cross market visibility and primary jurisdictional authority. We ourselves are taking proactive actions to be able to do more with the tools that we have within our control. 

Since late 2022, our regulatory team has sent many referrals to agencies that have primary responsibility in this area, relating to the suspicious trading activity in a variety of different microcap securities. We've also made referrals related to areas such as microcap volatility, short selling of publicly traded securities, and social media information.

Not all of them have compliance issues with our listing standards, but we provide information that is necessary for regulators and authorities to be able to conduct more in-depth analysis on these market behaviors.

Nasdaq Newsroom: Looking ahead, how do you envision these proposed updates shaping Nasdaq’s reputation and leadership in the global capital markets? What are the next steps in continuing to evolve listing standards and market oversight?

John Zecca: If you look at our track record in terms of both our review and qualification of listed companies as well as the ongoing review of trading activities, we have been thought leaders and first movers in terms of adjusting, updating, and reflecting on the market activities that are going on today. Even going back several years, we've made continuous changes to our listing standards and updated them, which have been followed by other exchanges, and we are very proud of the actions that we've taken.

The proposals that we're making today are a reflection and continuation of that. We think this is going to increase liquidity, allow for greater opportunities for companies, enable greater depth in trading, and facilitate capital formation by companies while providing enhanced safeguards for investors.

Looking forward, we will continue to look at the impact of these listing standards, we will continue to engage with regulators, and we will continue to investigate matters and provide information we deem helpful for other market participants.

Nasdaq Newsroom: How do these proposals relate to Nasdaq’s role in the global economy and objectives supporting economies around the world through technology, capital formation, and modernization?

John Zecca: At Nasdaq, we take our role seriously as the trusted fabric of the financial system that empowers economic opportunity by fueling and protecting the growth of ideas, institutions, and economies. That’s what today’s news is fundamentally about.

We've done an assessment of recent activities, we've had a lot of input from different players, and we've thoughtfully adjusted our listing standards to reflect those inputs and feedback from others. We will continue to be proactive, and we will continue to be the first movers in this area and beyond.

We also are strong advocates for the U.S. capital markets.  Earlier this year we proposed a series of reforms that could help reinvigorate the public company model, reducing unnecessary burdens on companies of all sizes, but especially on smaller companies.  Just today, we file a response to the SEC’s request for comment on foreign private issuers, where we encourage the Commission to maintain rules that encourage companies to list in the U.S., where U.S. retail investors can benefit from the diversification and growth they provide in a well-regulated environment. 

Together, we feel these efforts underscore Nasdaq’s role in fostering a resilient and transparent marketplace that supports appropriate listing standards for issuers and safeguards investor interests.

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