Nasdaq Expands Discretionary Authority to Deny Initial Listings Based on Manipulation Risk

Effective December 19, 2025, Nasdaq Rule IM-5101-3 introduces a risk-based framework permitting Nasdaq to deny initial listings based on perceived susceptibility to manipulation, including risks arising from third-party actors, advisor relationships, jurisdictional considerations, and similarities to previously listed companies that have experienced problematic trading.

The Nasdaq Stock Market LLC (Nasdaq) Rule 5101 is part of Nasdaq’s general discretionary framework governing the initial and continued listing of securities and reflects Nasdaq’s role as a self-regulatory organization charged with preventing fraudulent and manipulative acts and practices, promoting just and equitable principles of trade, and ensuring that listed companies do not pose undue risks to investors or the marketplace.

Rule 5101 provides Nasdaq with authority to deny or condition an initial or continued listing, or suspend or delist securities, where necessary to protect investors and the public interest and maintain the quality of and confidence in the Nasdaq market.

Unlike Nasdaq’s quantitative listing standards, which focus on objective financial and distribution thresholds, Rule 5101 is intended to give Nasdaq flexibility to address circumstances that may undermine market integrity or investor protection. The rule has historically been focused on characteristics and conduct attributable to the issuer itself or persons directly associated with the issuer rather than on broader market dynamics or the potential conduct of unaffiliated third parties following a company’s listing.

Rule IM-5101-3 reflects Nasdaq’s response to recent instances of problematic or unusual trading in certain listed securities and SEC-imposed temporary trading suspensions based on concerns about potential market manipulation arising from recommendations made by unknown persons via social media platforms. These suspensions generally did not allege issuer misconduct. Under Nasdaq’s previously existing rules, Nasdaq did not have the authority to deny a listing application based on the potential for unaffiliated third-party misconduct, unusual trading patterns, or concerns relating to a company’s advisors, or to consider the impact of foreign laws on the ability of US regulators and investors to obtain effective recourse in the event of misconduct.

Nasdaq has stated that it intends to apply the rule to all companies, including those currently in the listing application process. The SEC has requested comments, which may be submitted on or before January 20, 2026, but it can choose to suspend the rule at its discretion until February 10, 2026.

DISCRETIONARY GROUNDS FOR DENIAL OF AN INITIAL LISTING

New Rule IM-5101-3 provides that Nasdaq may deny an initial listing based on factors that make a company’s securities susceptible to manipulation. The rule expressly contemplates that this authority may be exercised even where the applicant otherwise satisfies all applicable listing requirements.

In determining whether to use this authority, Nasdaq may consider the following nonexclusive list of factors:

• Jurisdictional accessibility and enforceability: Where the company is located, and if any person or entity has substantial influence over it where such person or entity is located, in light of the availability of remedies to US shareholders, local laws that could impede regulatory enforcement, the feasibility of thorough due diligence, and regulator transparency in those jurisdictions.
• Expected market quality: Whether the underwriters, brokers, and clearing allocations and consideration of their prior deals involving those service providers raise concerns about adequate liquidity and potential concentration of public float.
• Questionable advisors: Any concerns regarding the company’s auditors, underwriters, law firms, brokers, clearing firms, or other professional service providers (or their principals if the advisor is a new entity), including the results of any prior reviews by applicable regulators, or the advisor’s involvement in prior offerings where the securities exhibited concerning or volatile trading patterns.
• Readiness for pubco life: The level of familiarity that company management and the board of directors have with US public company requirements, including under Nasdaq’s rules and the federal securities laws.
• Regulatory scrutiny: Any FINRA, SEC, or other regulatory referrals related to the company or its advisors and, if applicable, the results of those referrals.
• Going concern: For companies that have or recently had a going concern audit opinion, the company’s plan to continue as a going concern.

NOTICE, DISCLOSURE, AND REVIEW RIGHTS

Where Nasdaq determines to deny an initial listing based on its application of Rule IM-5101-3, Nasdaq Staff will issue a written determination describing the basis for its decision.

Within four business days of the date of the written determination, the subject company must make a public announcement, by press release or other Regulation FD–compliant means, disclosing receipt of the determination, identifying the Nasdaq rule or rules on which the determination is based, and describing each specific basis and concern identified by Nasdaq; the subject company may also seek review of the denial.

PRACTICAL IMPLICATIONS

Issuers contemplating a Nasdaq initial public offering, particularly foreign private issuers and companies operating in jurisdictions that present regulatory or enforcement challenges, should assess these factors early in the listing process. This includes the careful vetting of advisors, evaluation of ownership and influence structures, assessment of anticipated trading dynamics, and confirmation that management and boards are prepared to meet US public company requirements, each of which may be critical in mitigating the risk of a discretionary denial under Nasdaq’s expanded authority.

For companies currently in the process of seeking a Nasdaq listing, they should be prepared for the potential additional hurdles this rule may create on their path to ringing the Nasdaq bell, and consider whether they need to consider changing advisors or revisiting their organizational structures midstream.

Similarly, to the extent that certain advisors, particularly those working with foreign companies in jurisdictions that have been identified as having potentially limited transparency or recourse (such as China), are identified as being potentially problematic, it may lead to their inability to participate in initial listings on Nasdaq. Other advisors such as investment banking firms, financial advisors and law firms should also consider these factors when negotiating engagement agreements with issuers for potential initial public offerings with a listing on Nasdaq.

It remains to be seen how Nasdaq may exercise this new authority, or what specific red flags for issuers and their advisors will emerge as Nasdaq establishes a pattern of practice for its use of Rule IM-5101-3.