Nasdaq's New Rules for China-Based Companies: Impact on Global Asset Digitization

Abstract

On May 14, 2026, the U.S. Securities and Exchange Commission (SEC) issued an accelerated approval order (Release No. 34-105494), formally approving Nasdaq's proposed rule change (SR-NASDAQ-2025-069) targeting companies primarily operating in China (including Hong Kong and Macau special administrative regions). By setting hard fundraising minimums, tightening specific listing paths, and expanding the scope of entity look-through identification, the new rules mark a comprehensive increase in compliance and capital costs for small- and mid-cap China-based companies seeking U.S. listings. From an industry evolution perspective, the formal implementation of this policy not only reshapes the market landscape for traditional cross-border initial public offerings (IPOs) but may also prompt some small- and mid-sized assets to explore alternative financing and liquidity channels, including digital securities and real-world asset (RWA) emerging liquidity infrastructure.

I. Core Content and Implementation Rules of Nasdaq's New Regulations for China-Based Companies

The approved rule change is a substantive structural adjustment by Nasdaq based on recent cross-border regulatory enforcement pain points and market liquidity volatility characteristics. Its core restrictive provisions have been officially approved and entered into implementation, mainly reflected in the following four dimensions:

1. Hard Underwriting and Fundraising Minimums for Initial Public Offerings (IPOs)

The new rules impose stricter quantitative thresholds on the traditional IPO path for companies primarily operating in China:

• Mandatory Underwriting Model: The issuer must adopt a firm commitment offering, where the underwriter bears the financial risk of a failed offering, to enhance issuance quality and underwriting discipline.
• Minimum Gross Proceeds Requirement: The total gross proceeds from each IPO must be no less than $25 million. This threshold is significantly higher than the $15 million standard set by the Nasdaq Capital Market (NCM) for regular companies.

2. Tightening the Direct Listing Path

To prevent small-cap companies from using direct listings to circumvent the public investor review and initial liquidity building process of traditional IPOs, the new rules significantly tighten the path for China-based companies to list on lower-tier markets via direct listing. Companies attempting this path will typically face higher market standards or more complex rule applicability requirements.

3. Tightening Standards for Business Combinations and Transfers to Nasdaq

• Reverse Mergers and de-SPAC Transactions: Entities seeking listing through a merger with a special purpose acquisition company or a material asset restructuring must have a non-restricted public market value of at least $25 million after the merger, significantly raising the bar for listings via SPAC or reverse merger.
• OTC Market Uplisting: Entities applying to transfer from the OTC market or another exchange to Nasdaq must, in addition to meeting the $25 million public market value requirement, have traded stably on the original market for at least one year, to prevent speculative short-term listing and quick uplisting.

4. Substance-Over-Form Recognition Mechanism for China-Based Operating Entities (Rule 5210(l))

After implementation, the scope of application no longer relies solely on the company's place of incorporation (e.g., Cayman Islands, BVI), but adopts a comprehensive look-through assessment. If a company meets most of the following seven quantitative criteria, it will be deemed a 'company primarily operating in China':

1. Location of the company's books and key records;
2. 50% or more of assets located in Mainland China, Hong Kong, or Macau;
3. 50% or more of revenue generated from the above regions;
4. 50% or more of board members are Chinese citizens or residents;
5. 50% or more of senior management are Chinese citizens or residents;
6. 50% or more of employees or office locations are in the above regions;
7. The company's actual control (including joint control) belongs to Chinese citizens, residents, or legal entities.

II. Background of Policy Implementation and Liquidity Divergence in Traditional Capital Markets

According to risk data submitted by Nasdaq to the SEC and adopted during hearings, the core rationale for these rules is investor protection and practical considerations of cross-border regulation.

• Micro-Cap Stock Market Risk: Official data show that between 2022 and 2025, a very high proportion of suspicious manipulation reports referred by Nasdaq involved China-based companies. Many small-cap companies that raised less than $25 million in their IPOs quickly faced liquidity crises and market value crashes, frequently violating continued listing requirements.
• Liquidity Concentration in Large-Caps: Liquidity in the traditional U.S. stock market is increasingly favoring large-cap, high-float technology leaders. Small and medium-sized enterprises not only face rising legal, audit, and underwriting costs, but also often lose their refinancing function in the capital market after listing due to wide bid-ask spreads and low turnover.

This trend has led many traditional assets in the growth stage with moderate scale (including high-quality equity, SME stocks, and various industrial investment funds) to face difficulties in raising funds and maintaining listings in the traditional exchange system, urgently requiring more efficient, low-friction liquidity solutions.

III. Potential Opportunities for Digital Asset Infrastructure to Accommodate Traditional Financial Assets

As compliance boundaries tighten for traditional offshore exchanges like Nasdaq, the potential of digital asset exchanges and on-chain clearing and settlement networks as complementary infrastructure is becoming increasingly evident. This process is the digital evolution of real-world assets (RWA).

1. Technical and Efficiency Advantages of Digital Asset Listings

Compared to the cumbersome cross-border clearing and settlement processes and high intermediary costs of traditional financial systems, digital asset networks use smart contracts to achieve atomic settlement. This mechanism requires that a trade and its settlement either complete simultaneously or fail entirely, significantly reducing time costs and settlement risks for cross-border funds.

In addition, digital fractionalization of asset ownership allows traditionally high-barrier assets (such as specific offshore equity funds, foreign exchange derivatives, etc.) to be fragmented into smaller shares. This enables assets to reach a broader range of compliant investors globally, thereby establishing deeper liquidity pools in the secondary market.

2. Main Paths and Business Logic Exploration for Tokenization of Traditional Assets

Currently, forward-looking digital asset exchanges and research institutions focus on RWA core business exploration in the following three areas:

• Fixed Income and Short-Term Notes: High-liquidity, low-risk assets mapped in digital form (such as short-term U.S. Treasuries) provide stable underlying yield instruments for on-chain native funds.
• Diversified Funds and Private Equity: Exploring the conversion of special assets with long lock-up periods and high subscription thresholds (e.g., Pre-IPO fund allocations targeting leading unicorns in frontier technology) into flexibly tradable digital certificates.
• On-Chain Mappings of Stocks and Foreign Exchange Assets: Under the premise of full compliance and trust custody, provide global investors with 24/7, cross-border multi-asset allocation options, attempting to absorb investment demand spilling over from traditional markets.

3. Business Closed Loop and Risk Boundaries of On-Chain Financing

In a mature RWA business architecture, the core of digital asset issuance is 'empowering the real economy.' After raising funds through compliant on-chain channels, the project party directly deploys the funds into the operation of the underlying assets.

In this ecosystem, the boundaries of technology, listing, and supervision for trading platforms and research institutions are very clear:

• The core function of an exchange is to provide robust technical support, a compliant matching platform, and a sound secondary market circulation environment.
• Under most platform-type architectures, the exchange typically does not directly bear the operational risks of the underlying assets. The focus of risk management is to establish strict asset admission standards, continuous disclosure review mechanisms, and transparent emergency response plans, to safeguard traders' right to information and market order at the infrastructure level.

IV. Conclusion and Industry Implications

The official approval and implementation of Nasdaq's new listing rules for China-based companies (SR-NASDAQ-2025-069) marks a substantive contraction in the tolerance of traditional offshore capital markets for small- and mid-cap assets. From an industry evolution perspective, this shift in the macro-regulatory environment may provide new asset access opportunities for compliant digital asset infrastructure.

In the future, the positioning of digital asset exchanges will not be limited to trading platforms for crypto-native assets, but may evolve into digital clearing and settlement hubs for globally diversified assets. By continuously improving their compliance audit frameworks and risk control systems, digital securities markets are expected to gradually absorb high-quality SMEs and innovative assets spilling over from traditional markets, promoting deep integration of the TradFi and Crypto ecosystems on a compliant track.

References

• U.S. Securities and Exchange Commission (SEC). Release No. 34-105494; File No. SR-NASDAQ-2025-069. (Order Granting Accelerated Approval of a Proposed Rule Change, as Modified by Amendment No. 3), May 14, 2026.