How Nasdaq’s Proposed Rule Changes Could Reshape De-SPACs and Chinese Issuer Listings

We have recently received many questions from Chinese clients about Nasdaq’s latest proposed listing rules. Nasdaq has now proposed two significant rule changes, with file numbers SR-NASDAQ-2025-066 and SR-NASDAQ-2025-069 (together, the “Nasdaq’s Proposed Rules”), which were published in September 2025. These proposals cumulatively would reshape how IPOs and de-SPACs come to market, particularly for companies with operations in China, Hong Kong, and Macau.

At the heart of these proposals lies a balancing act: on the one hand, the reformation eases access for SPACs by harmonizing them to IPO treatment; on the other, the bar for Chinese issuers, who have historically presented outsized compliance and enforcement risks, has been raised.

The Outline of the Proposals

Nasdaq’s Proposed Rules focus on the alignment of de-SPAC transactions with IPOs. The key changes that stand out are:

• Exclusion from the “reverse merger” definition. De-SPACs will no longer be subject to the one-year seasoning period that reverse mergers face, provided that they register with the SEC.
• Elimination of Average Daily Trading Volume (“ADV”) hurdles. SPACs that used to trade OTC will not have to show a minimum pre-merger trading activity before uplisting. Thus, it is recognized that pre-merger SPAC trading reflects only trust value, not operating business value.

Nasdaq’s Proposed Rules, by contrast, introduce heightened requirements for China-based issuers:

• A mandatory $25 million IPO threshold, which requires firm commitment offerings from U.S. public holders.
• A post-merger float requirement of at least $25 million in unrestricted public shares for de-SPACs.
• A ban on Capital Market direct listings by PRC, Hong Kong, or Macau companies, forcing them to qualify for the stricter Global or Global Select tiers.
• A one-year seasoning period for issuers who transfer from OTC or another exchange, coupled with the $25 million float requirement.

As a corollary, these proposals create a two-track system: smoother access for SPACs generally, but a significantly narrowed path for Chinese issuers.

The “China Nexus” definition includes any company that is headquartered or incorporated in the PRC (including the Hong Kong Special Administrative Region and the Macau Special Administrative Region), or whose business is principally administered in one of those jurisdictions.

Nasdaq will apply a seven-factor test to determine whether an issuer is “principally administered in one of those jurisdictions”, regardless of offshore holding company structures. This determination involves an analysis of the facts and circumstances, including whether:

• the Company’s books and records are located in that jurisdiction;
• at least 50% of the Company’s assets are located in such jurisdiction;
• at least 50% of the Company’s revenues are derived from such jurisdiction;
• at least 50% of the Company’s directors are citizens of, or reside in, such jurisdiction;
• at least 50% of the Company’s officers are citizens of, or reside in, such jurisdiction;
• at least 50% of the Company’s employees are based in such jurisdiction; or
• the Company is controlled by, or under common control with, one or more persons or entities that are citizens of, reside in, or whose business is headquartered, incorporated, or principally administered in such jurisdiction.

Nasdaq elaborates that the factors it would consider in determining whether a business is principally administered in China are supported by Nasdaq’s experience applying the Restrictive Market definition and by SEC guidance on foreign private issuer status, which suggests that a foreign company may take into account factors such as the locations of its principal business segments or operations, its board and shareholder meetings, its headquarters, and its most influential key executives.

The Importance of Scope and Timing

The publication of Nasdaq’s Proposed Rules in September 2025 coincides with broader U.S. regulatory efforts. The SEC has already declared that de-SPACs are functionally IPOs, which require full registration and disclosure. The alignment with this broader policy, Nasdaq removes duplicative barriers and provides clarity to the sponsors, underwriters, and investors.

At the same time, the policymakers remain deeply concerned about Chinese listings. Nasdaq’s own data show that although Chinese companies made up less than 10% of listings since 2022, they accounted for nearly 70% of referrals to the SEC or FINRA for trading anomalies. Therefore, Rule 5210(l) has been designed to screen out micro-cap or opaque issuers that could undermine market integrity.

The Spectrum of Risks and Course of Action for Issuers and Sponsors

Compliance Risks for Chinese Issuers

A failure to raise or maintain the $25 million minimum, whether in an IPO or in a de-SPAC context, will block Nasdaq admission. A particular concern is also the significant redemption rates in SPAC deals, because they can erode public float below the threshold unless they are offset by PIPEs or backstops.

SEC and PCAOB Scrutiny

Even if Nasdaq’s rules are satisfied, the issuers remain exposed to the Holding Foreign Companies Accountable Act (“HFCAA”), which can trigger a potential delisting if PCAOB inspection access is denied. The issuers should expect prolonged SEC comment periods on Chinese deals, which will be mainly focused on VIE structures, PRC regulatory approvals, and audit transparency.

Investor Confidence and Market Optics

For de-SPACs, the elimination of seasoning and ADV requirements is a positive development, but only if investors believe the underlying business is sound. For Chinese issuers, the heightened thresholds signal to the market that only larger, more transparent companies will be admitted. Smaller-cap issuers may be crowded out entirely, in an effort by the SEC to reduce speculative but often fragile listings.

Undermined Pathways

Chinese companies, which have followed the traditional playbook of pursuing modest IPOs on the Nasdaq Capital Market or, alternatively, quickly uplisting from OTC will effectively close. The proposals require issuers to demonstrate size, liquidity, and evidentiary support before admission. In practice, this will likely mean the following:

• Fewer PRC listings overall, but larger and more seasoned ones.
• Greater reliance on underwriters to structure offerings that satisfy float distribution to U.S. investors.
• Increased transaction timelines, given the evidentiary and regulatory hurdles.

Real-World Implications

For illustrative purposes, one can take into consideration a hypothetical Cayman holding company with VIE operations in China. Under the Nasdaq’s Proposed Rules:

• It must raise at least $25 million in an IPO or demonstrate that value post-merger.
• It cannot list directly on Nasdaq’s Capital Market.
• If transferring from OTC, it must season for a year with $25 million in float.
• Its audit firm must be PCAOB-accessible, or it risks potential HFCAA delisting.

Sponsors and underwriters will need to plan PIPE allocations, backstop commitments, and syndicate structures several months in advance in order to meet these requirements.

Best Practices

The navigation of this environment is critical. To this end, the issuers and sponsors should:

• Map their China nexus early. Document where assets, revenues, employees, and control reside, because Nasdaq will weigh these factors holistically.
• Design offerings with float thresholds in mind. Structure redemptions, PIPEs, and backstops to ensure the $25 million standard is met post-closing.
• Engage PCAOB-inspected auditors. Confirm that work papers are accessible to avoid HFCAA risk.
• Diversify investor bases. An over-concentration of PRC investors may undermine float calculations.
• Involve underwriters early. Their certifications of offering size and respective distribution will be central to Nasdaq’s review.

Conclusion

Nasdaq’s Proposed Rules reflect a bifurcated strategy: first, it opens the door wider for SPACs, but concurrently, it narrows the gate for Chinese issuers. Sponsors and underwriters are at the center of the reformation because the proposals bring about streamlined mechanics for de-SPACs, provided that the target is not materially based in China.

In addition, the message for PRC-linked issuers is clear: only larger, transparent, and U.S.-investor-oriented companies will qualify. Smaller-cap and less transparent players will find the Nasdaq door shut. Pursuant to the proposals, today’s environment, regulatory timing, and compliance strategy are not just procedural matters; they tend to become existential considerations. For any market participant that considers a potential IPO or any de-SPAC planning a Nasdaq debut, the essential word is “preparation”. Even more so, Chinese issuers need to be more prepared than any other participant, as the hurdles have become higher than ever.

We represent many SPACs and targets in de-SPAC transactions. If you would like to consult with us regarding the potential impact of Nasdaq’s Proposed Rules on your project, or are seeking experienced de-SPAC counsel, please feel free to contact us.

Contact Person: Nick L. Torres, Esq. and Zhiqi Zheng, Esq.