Nasdaq's Strategic Move to Curb Market Manipulation in Small-Cap IPOs

The U.S. capital markets have long grappled with the dual challenge of fostering innovation through accessible IPO pathways while safeguarding investors from the risks of market manipulation. In 2025, Nasdaq has taken a decisive step to recalibrate this balance, introducing a suite of reforms aimed at bolstering liquidity, enhancing investor protection, and curbing abuses in the small-cap IPO space. These changes reflect a broader industry reckoning with the vulnerabilities of thinly traded stocks and the growing scrutiny of foreign-listed companies.

Raising the Bar: Liquidity Thresholds and Delisting Frameworks

At the core of Nasdaq's strategy is the elevation of liquidity requirements for small-cap IPOs. The exchange has raised the Minimum Market Value of Unrestricted Publicly Held Shares (MVUPHS) to $15 million for companies listing under the Net Income Standard, a significant jump from the previous $5 million threshold for the Nasdaq Capital Market and $8 million for the Global Market. This adjustment ensures that newly listed companies have sufficient public float to support meaningful price discovery and reduce the risk of manipulative practices such as wash trading or pump-and-dump schemes.

Complementing this is an accelerated delisting process for companies with a market value of listed securities below $5 million. Unlike prior rules, which allowed a compliance period for underperforming firms, the new framework mandates immediate suspension and delisting without a grace period. This measure targets "zombie" stocks-companies with negligible trading volumes and weak fundamentals-that often serve as vehicles for market abuse.

By swiftly removing such entities, Nasdaq aims to preserve the integrity of its listings and deter speculative activity.

For companies primarily operating in China, the stakes are even higher. Nasdaq has imposed a $25 million minimum IPO proceeds requirement, a move designed to address systemic risks associated with opaque governance and regulatory challenges in foreign markets. This threshold not only ensures adequate capitalization but also aligns with broader regulatory efforts to scrutinize cross-border listings.

Investor Protection: A Dual Focus on Transparency and Accountability

Nasdaq's reforms extend beyond liquidity metrics to address structural weaknesses in investor protection. By excluding shares held by selling shareholders from the MVUPHS calculation, the exchange has closed a loophole that previously allowed companies to inflate public float through secondary offerings. This change ensures that liquidity is derived from genuine market demand rather than artificial inflows.

The reforms also grant Nasdaq greater discretion to deny listings based on red flags such as a company's geographic location, board integrity, or legal recourse availability for U.S. investors according to recent analysis. This proactive approach mirrors the U.S. Securities and Exchange Commission's (SEC) recent efforts to tailor disclosure requirements to company size and maturity, reducing the regulatory burden for emerging firms while maintaining safeguards. Together, these measures create a more transparent ecosystem where investors can assess risks with greater confidence.

Effectiveness and Challenges: A Mixed Picture

While the reforms are laudable in intent, their real-world impact remains under evaluation. Data from Q3 2025 suggests a rebound in small-cap IPO activity, with these stocks outperforming the S&P 500 for the first time since early 2021. This resurgence, however, may be attributed more to macroeconomic factors-such as Federal Reserve rate cuts and easing trade tensions-than to Nasdaq's rule changes.

Critics argue that the higher liquidity thresholds could inadvertently exclude promising but capital-constrained startups from public markets, potentially stifling innovation. The SEC's parallel push to ease IPO rules for small firms-by aligning disclosure requirements with company maturity-seeks to mitigate this risk. Yet, the tension between investor protection and market access remains unresolved.

Looking Ahead: A Test of Resilience

Nasdaq's 2025 reforms represent a bold reimagining of the small-cap IPO landscape, prioritizing liquidity and transparency over sheer volume. However, their success will depend on enforcement rigor and the SEC's approval of complementary measures. For investors, the reforms offer a more robust framework to navigate the risks of small-cap investing, though vigilance remains essential.

As the market adapts to these changes, one thing is clear: the days of lax oversight in the small-cap space are over. Nasdaq's strategic pivot underscores a broader industry shift toward accountability, setting a precedent for how exchanges can balance innovation with investor trust in an increasingly complex financial ecosystem.