On March 12, 2025, the Securities and Exchange Commission approved a proposed rule from The Nasdaq Stock Market LLC (“Nasdaq”), which modifies initial listing liquidity requirements for companies completing an initial public offering (“IPO”) or an uplist from the over-the-counter markets (“OTC”).
Background
When a company applies for initial listing on the Nasdaq Capital Market (“Capital Market”) or the Nasdaq Global Market (“Global Market”), either through an IPO or an uplist from the OTC, it must satisfy certain initial listing standards, including a minimum market value of unrestricted publicly held shares requirement (the “Public Float Requirement”). The only shares that count toward the Public Float Requirement are those not held by an officer, director, or 10% shareholder of the company and not subject to resale restrictions. Before this rule was approved, shares sold in the IPO and shares registered for resale or without restrictive legends at the time of the IPO (“freely tradeable shares”) counted toward the Public Float Requirement.
To be listed on Nasdaq, a company must meet one of three initial listing standards for the Capital Market or one of four initial listing standards for the Global Market. The table below outlines the Public Float Requirement for each standard:
| Capital Market | Public Float Requirement |
| Equity Standard | $15 million |
| Market Value of Listed Securities Standard | $15 million |
| Net Income Standard | $5 million |
| Global Market | Public Float Requirement |
| Income Standard | $8 million |
| Equity Standard | $18 million |
| Market Value Standard | $20 million |
| Total Assets/Total Revenue Standard | $20 million |
New Rule
Under the newly approved rule, a company completing an IPO or an uplist from the OTC must meet the applicable Public Float Requirement solely with proceeds from the offering. The value of freely tradeable shares will no longer count toward the Public Float Requirement. In other words, now a company pursuing an IPO and listing on the Capital Market will need to raise at least $15 million in its IPO if it is relying on the equity standard; whereas, before the new rule, this company could have counted the value of freely tradeable shares, such as shares that were issued in private placements more than 12 months before the IPO and had the restricted legend removed.
In addition, to qualify for initial listing on the Capital Market or Global Market using the equity standard, a company uplisting from the OTC must (i) have a minimum daily trading volume of 2,000 shares over the past 30 trading days with trading occurring on at least 50% of the days, or (ii) list in connection with a firm commitment underwritten public offering of at least $15 million for a Capital Market listing or at least $18 million for a Global Market listing. If the company is using a different standard, the minimum required capital raise would be equal to the Public Float Requirement under that standard.
Next Steps
The new rule will become operative on April 11, 2025 and will make it more difficult for smaller companies to satisfy initial listing requirements for IPOs and uplists, particularly in the choppy markets that small- and micro-cap companies have experienced over the last few years. If you have any questions about the application of this new rule or completing an IPO or uplist from the OTC, please contact a member of Harter Secrest & Emery’s Securities and Capital Markets group.