中概股 · 2026-01-05

How NASDAQ's Tightening Rules for Small-Cap Stocks Affect China Companies

The Nasdaq Stock Market’s proposed rule changes, filed with the U.S. Securities and Exchange Commission (SEC) in December 2024 and set for phased implementation through 2026, represent the most significant tightening of listing standards for small-cap companies since the dot-com era. For the approximately 120 China-based issuers currently trading on Nasdaq with market capitalisations below USD 300 million, these changes directly threaten their continued listing status and will fundamentally alter the calculus for future Chinese companies considering a U.S. IPO. The core of the reform is a shift from a single, static minimum bid price rule to a dynamic, multi-factor compliance framework that ties continued listing eligibility to a company’s market capitalisation, revenue, and trading volume. This regulatory pivot, combined with the SEC’s concurrent scrutiny of reverse mergers and SPAC transactions, creates a dual pressure point for China-incorporated entities that have historically relied on smaller capitalisations and lower liquidity thresholds to access U.S. public markets. The implications extend beyond individual stock prices: the new rules will reshape the VIE (Variable Interest Entity) arbitrage model, alter sponsor underwriting practices in Hong Kong, and force a re-evaluation of the dual-listing pathway for mid-cap Chinese enterprises.

The Mechanics of Nasdaq’s Small-Cap Rule Tightening

The proposed amendments, detailed in Nasdaq’s SEC filing SR-NASDAQ-2024-082, introduce a graduated compliance system for companies listed on the Nasdaq Capital Market, the exchange’s small-cap tier. The new framework eliminates the single USD 1.00 minimum bid price requirement for continued listing and replaces it with a three-tiered structure based on a company’s public float market capitalisation.

Under the new framework, for companies with a public float market capitalisation below USD 50 million, the minimum bid price requirement rises to USD 1.50. For those with a public float between USD 50 million and USD 100 million, the minimum bid price remains at USD 1.00, but the company must also maintain a minimum market value of publicly held shares of USD 5 million. For companies with a public float exceeding USD 100 million, the existing USD 1.00 minimum bid price rule continues to apply, but the compliance period for curing a deficiency is reduced from 180 calendar days to 90 calendar days. This tiered approach directly targets the cohort of small-cap issuers that have historically used reverse stock splits to artificially inflate their share price above the USD 1.00 threshold, a practice the SEC has identified as a recurring compliance evasion tactic.

For China-based issuers, the most material change is the introduction of a minimum public float market capitalisation requirement of USD 15 million for continued listing on the Capital Market. Previously, Nasdaq had no such explicit threshold for the Capital Market tier; the requirement existed only for the Global Select Market and Global Market tiers. Data from the SEC’s 2024 Staff Report on Chinese Companies lists 37 Nasdaq-listed Chinese firms with public float market capitalisations below USD 15 million as of 31 December 2024. These companies now face a 180-day cure period, after which they must either demonstrate compliance or face delisting. The practical implication is that a reverse stock split, while raising the nominal share price, does not increase the public float market capitalisation, rendering the traditional cure mechanism ineffective for many.

The VIE Structure Under Renewed Scrutiny

The new Nasdaq rules intersect directly with the ongoing regulatory recalibration of VIE structures by the China Securities Regulatory Commission (CSRC) and the Hong Kong Stock Exchange (HKEX). The VIE framework, which allows a PRC operating company to consolidate its financial results with a Cayman Islands-incorporated listed entity through contractual arrangements rather than direct equity ownership, has been the primary vehicle for Chinese companies listing on Nasdaq since the 2000s. The CSRC’s 2023 Administrative Provisions on Overseas Securities Offering and Listing by Domestic Companies, effective 31 March 2023, formalised a filing and approval process for all Chinese companies seeking overseas listings, including those using VIE structures.

The new Nasdaq rules create a specific compliance tension for VIE-structured companies. The public float market capitalisation calculation under Nasdaq rules includes only shares held by non-affiliates. For a typical VIE structure, where the Cayman Islands holding company has a single class of ordinary shares and the PRC operating entity’s equity is held through contractual arrangements, the public float is often limited to the shares issued to U.S. public investors. The CSRC’s filing regime requires disclosure of the VIE structure’s ultimate beneficial owners, which often include PRC nationals or entities that are considered affiliates under Nasdaq rules. This creates a situation where a company may have a total market capitalisation above USD 100 million but a public float market capitalisation below USD 15 million due to the concentrated ownership structure typical of VIE issuers.

The HKEX’s Listing Rules, specifically Chapter 18C for Specialist Technology Companies and Chapter 19C for Overseas Issuers, have already tightened their own requirements for VIE structures. In its 2024 Guidance Letter GL117-24, the HKEX mandated that all VIE arrangements must be specifically approved by the CSRC and that the listed issuer must demonstrate that the VIE structure is the only viable option for its specific business sector. This regulatory convergence between Nasdaq, the SEC, the CSRC, and the HKEX means that a Chinese company evaluating a dual listing must now account for three separate compliance regimes, each with its own minimum market capitalisation and public float requirements. The cost of maintaining a VIE structure on Nasdaq under the new rules, including the risk of a delisting proceeding, may now exceed the benefit for companies with market capitalisations below USD 300 million.

The Hong Kong Dual-Listing Alternative

For Chinese companies currently on Nasdaq facing the new small-cap rules, the Hong Kong Stock Exchange (HKEX) presents a viable but structurally different alternative. The HKEX’s Main Board requires a minimum market capitalisation of HKD 500 million (approximately USD 64 million) for a primary listing under the Profit Test, or HKD 4 billion (approximately USD 512 million) under the Market Capitalisation/Revenue Test for Specialist Technology Companies. These thresholds are higher than Nasdaq’s Capital Market minimum of USD 15 million public float market capitalisation, but the HKEX’s compliance framework is less reliant on bid price mechanics and more focused on financial fundamentals.

The dual-listing pathway, where a Chinese company maintains its Nasdaq listing while also listing on the HKEX, has become increasingly common since 2022. Data from the HKEX shows that as of 31 December 2024, 27 Chinese companies maintained dual listings on Nasdaq and the HKEX, with a median market capitalisation of USD 1.2 billion. These companies are generally above the new Nasdaq small-cap thresholds and are not directly affected by the rule changes. However, for the cohort of smaller issuers with market capitalisations between USD 50 million and USD 300 million, a full primary listing on the HKEX under Chapter 19C (for overseas issuers) or Chapter 18C (for specialist technology companies) may be the only viable alternative to delisting.

The HKEX’s rules for secondary listings, introduced in 2018 and revised in 2023, allow a company listed on a recognised stock exchange (including Nasdaq) to seek a secondary listing on the HKEX without a full prospectus, provided it meets certain eligibility criteria. The key requirement is a market capitalisation of at least HKD 10 billion (approximately USD 1.28 billion) for a secondary listing. For companies below this threshold, a primary listing is the only option, which requires a full HKEX vetting process including sponsor appointment, due diligence, and a prospectus registered with the SFC. The cost of a primary HKEX listing, including sponsor fees, legal fees, and underwriting commissions, typically ranges between HKD 80 million and HKD 150 million (approximately USD 10 million to USD 19 million), a prohibitive expense for a company with a market capitalisation below USD 100 million.

The new Nasdaq rules will have a direct impact on the underwriting practices of Hong Kong-based sponsors and investment banks that advise Chinese companies on U.S. listings. The traditional model for a Chinese company’s Nasdaq IPO involved a small syndicate of U.S. broker-dealers, often with a Hong Kong affiliate, underwriting an offering of 1 million to 5 million American Depositary Shares (ADSs) at a price of USD 4 to USD 8 per ADS. The sponsor’s role was limited to due diligence on the PRC operating entity and the VIE structure, with the U.S. underwriting syndicate handling the SEC registration and Nasdaq listing process.

Under the new Nasdaq framework, the underwriting syndicate must now ensure that the post-IPO public float market capitalisation exceeds USD 15 million at the time of listing. For a company raising USD 20 million in an IPO, this means that at least 75% of the offering must be placed with non-affiliate investors to achieve a USD 15 million public float. This requirement fundamentally changes the underwriting risk profile. The sponsor must now conduct a more rigorous assessment of the investor base, ensuring that the placement book is not dominated by a small number of PRC-based funds or family offices that may be considered affiliates under Nasdaq rules. This increases the due diligence burden on the sponsor and may require the appointment of a second sponsor or a co-lead manager with specific U.S. regulatory expertise.

The SFC’s Code of Conduct for Persons Licensed by or Registered with the Securities and Futures Commission, specifically paragraph 17.1 on sponsor due diligence, already requires sponsors to take reasonable steps to satisfy themselves that the listing applicant is suitable to be listed. The new Nasdaq rules add an additional layer of suitability assessment: the sponsor must now opine on the applicant’s ability to maintain a minimum public float market capitalisation for at least 12 months post-listing. This opinion requires a forward-looking financial model that incorporates Nasdaq’s compliance thresholds, a requirement not currently part of the HKEX’s listing rules. The practical effect is that sponsors will now charge higher fees for Nasdaq-bound Chinese companies, reflecting the increased due diligence and ongoing compliance monitoring costs.

The Delisting and Deregistration Mechanics

For Chinese companies that cannot meet the new Nasdaq small-cap rules, the delisting and deregistration process under U.S. securities laws is a complex, multi-jurisdictional procedure that requires careful planning. The SEC’s Rule 12h-3 and Rule 15d-6 under the Securities Exchange Act of 1934 govern the suspension of reporting obligations for delisted companies. A company that voluntarily delists from Nasdaq must also deregister its securities with the SEC, a process that requires the company to have fewer than 300 shareholders of record (or fewer than 1,200 shareholders for a foreign private issuer) at the beginning of its fiscal year.

For a Chinese company with a VIE structure, the shareholder count includes both the ADS holders in the U.S. and the underlying ordinary shareholders in the Cayman Islands. The Cayman Islands register of members typically shows a small number of nominee holders for the ADS programme, but the beneficial ownership can be spread across thousands of U.S. retail investors. The company must conduct a shareholder count under SEC rules, which requires cooperation from the depositary bank (typically The Bank of New York Mellon or JPMorgan Chase) to identify the number of beneficial holders. This process can take three to six months and requires the company to file a Form 25 with the SEC and a Form 15 with the Nasdaq Listing Qualifications Department.

The HKEX’s Listing Rules, specifically Rule 6.12, require a listed issuer that has been delisted from another exchange to immediately notify the HKEX and to provide a written explanation of the delisting. For a Chinese company that maintains a secondary listing on the HKEX while its primary listing on Nasdaq is delisted, the HKEX may require the company to convert its secondary listing to a primary listing within 12 months. This conversion process involves a full HKEX vetting, including a sponsor’s report and a shareholders’ circular, adding further cost and complexity. The Hong Kong Companies Ordinance (Cap. 622) also requires a company that is delisted from its primary exchange to consider whether it remains a “public company” for the purposes of the ordinance, which may trigger additional disclosure obligations under the SFC’s Codes on Takeovers and Mergers and Share Buy-backs.

Actionable Takeaways for Chinese Companies and Advisors