Foreign Private Issuers In The Crosshairs; Nasdaq And The Sec Take Aim In 2025

The 2025 calendar year was tough for foreign private issuers. Throughout the year, the U.S. Securities and Exchange Commission (the “SEC”) and The Nasdaq Stock Market (“Nasdaq”) continually took actions that could materially adversely affect the ability of foreign private issuers (“FPIs”) to qualify for FPI status, list their securities for trading on Nasdaq, and access the U.S. capital markets.

These developments ranged from the publication of a concept release by the SEC that raised a number of questions regarding the definition of “foreign private issuer”, to the formation by the SEC of a Cross-Border Task Force that is focused on the activities of foreign private issuers and that has thus far resulted in the indefinite suspension of trading of the securities of more than a dozen Asia-based FPIs, to the adoption and/or proposal by Nasdaq of rule changes that would increase the quantitative and qualitative requirements to obtain and maintain a Nasdaq listing.

When taking these actions, the SEC and Nasdaq typically cited a familiar array of justifications, including a desire to prevent fraudulent and manipulative practices, promote more efficient, stable and robust trading, and protect investors and the public interest.

To help understand the new landscape that FPIs face, and how that landscape may evolve in the near future, set forth below is a summary of certain material recent regulatory developments, many of which are already effective but some of which remain subject to further action.

What is a Foreign Private Issuer?

A “foreign private issuer”, as defined in Section 3b-4(c) of the Securities Act of 1933 (the “Securities Act”), is, in general, an issuer that is formed outside the United States and that satisfies at least one of the following two tests:

• 50% or less of its outstanding voting securities are held of record by U.S. residents; or
• more than 50% of its outstanding voting securities are held by U.S. residents, and it has none of the following contacts with the U.S.: (i) a majority of its executive officers or directors are U.S. citizens or residents; (ii) more than 50% of its assets are located in the U.S.; or (iii) its business is administered principally in the U.S.

FPIs benefit from certain accommodations and exemptions from the disclosure and filing requirements of the federal securities laws, the cumulative effect of which make having FPI status desirable. These accommodations and exemptions include that FPIs are: (i) permitted to prepare and present their financial statements in accordance with (x) International Financial Reporting Standards as adopted by the International Accounting Standards Board, without a reconciliation to U.S. Generally Accepted Accounting Principles (“US GAAP”), or (y) home country Generally Accepted Accounting Principles with a reconciliation to US GAAP; (ii) not subject to Regulation FD; (iii) not required to follow U.S. proxy solicitation rules or to file proxy statements; and (iv) allowed to follow various home country corporate governance practices in lieu of the SEC and U.S. stock exchange rules that would apply if the issuer were a U.S. domestic listed company.

SEC Concept Release

On June 4, 2025, the SEC published a concept release soliciting comment on the definition of “foreign private issuer”, and in particular whether that definition should be amended in light of significant changes in the population of FPIs since 2003. In the concept release, the SEC noted that when it provided the current FPI accommodations and exemptions, it did so based on its understanding that most FPIs would be subject to meaningful disclosure and other regulatory requirements in their home country jurisdictions and that the securities of FPIs would be traded in foreign markets as well as U.S. markets.

However, a recent review by the SEC of FPIs revealed significant changes in that population in terms of jurisdiction of incorporation, headquarters and primary trading market. Specifically, the SEC noted that the most common jurisdiction of incorporation for FPIs in 2023 was the Cayman Islands and that the most common jurisdiction of headquarters for FPIs in 2023 was mainland China, with the incidence of differing jurisdictions of incorporation and headquarters increasing substantially in recent years. Previously, FPIs were most often incorporated and headquartered in Canada and the UK, where the SEC anticipated that they would be subject to meaningful home-jurisdiction regulatory and disclosure regimes. The SEC also observed that global trading of the equity securities of FPIs has become increasingly concentrated in U.S. capital markets over the last decade, with a majority of FPIs having no or minimal trading of their equity securities on any non-U.S. market.

The concept release solicits public input on various possible changes to the FPI definition, including the following:

• updating the existing FPI eligibility criteria;
• adding a foreign trading volume requirement;
• adding a major foreign exchange listing requirement;
• incorporating an SEC assessment of foreign regulation applicable to the FPI;
• establishing new mutual recognition systems; or
• adding an international cooperation arrangement requirement.

The SEC has yet to formally amend, or propose the amendment of, the definition of “foreign private issuer” following the publication of the concept release. However, the SEC has solicited and received significant public comment regarding the concept release, and it is expected that the SEC will propose amendments to the definition of “foreign private issuer” during 2026 to expand the requirements to achieve FPI status.

Formation of Cross-Border Task Force

On September 5, 2025, the SEC announced the formation of a task force designed to strengthen and enhance the Division of Enforcement's efforts to identify and combat cross-border fraud harming U.S. investors. According to the SEC's press release, the task force focuses on investigating potential federal securities law violations related to foreign-based companies, including potential market manipulation, such as “pump-and-dump” and “ramp-and-dump” schemes by foreign private issuers, and enforcement efforts on gatekeepers, particularly auditors and underwriters. Further, the task force also examines potential securities law violations related to companies from non-US jurisdictions, including, in particular, China, where governmental control and other factors pose unique investor risks.

Since the formation of the task force, the SEC has issued orders suspending the trading of more than a dozen Asia-based FPIs, alleging, in most cases, potential manipulation effectuated through recommendations made by unknown persons via social media, which appear to be designed to artificially inflate the price and trading volume of the securities. In each case, after the expiration of the initial 10-business day SEC suspension, Nasdaq has announced that it has requested additional information and that trading will remain halted.

To date, the securities of none of the impacted FPIs have resumed trading, and neither the SEC nor the issuers have provided meaningful updates about the status of the proceedings, including further regulatory actions or information requests and a potential timetable as to when, or if, the suspensions may be lifted.

Changes to Nasdaq Initial Listing Standards

On March 12, 2025, the SEC approved a rule change to Nasdaq's initial listing liquidity requirements. As a result of the rule change, a company seeking to list on the Nasdaq Global Market or the Nasdaq Capital Market in connection with an IPO, or to uplist to Nasdaq from the OTC in connection with a public offering, must satisfy the applicable minimum Market Value of Unrestricted Publicly Held Shares (“MVUPHS) requirement solely from the proceeds of the offering. Previously, unrestricted shares issued prior to an offering that were not held by affiliates would be counted toward the MVUPHS requirement.

Under Nasdaq rules, for initial listings on the Nasdaq Global Market, issuers must have a minimum MVUPHS of $8 million under the Net Income Standard, $18 million under the Equity Standard, and $20 million under either the Market Value or Total Assets / Total Revenue Standards, and for initial listings on the Nasdaq Capital Market, issuers must have a minimum MVUPHS of $5 million under the Net Income Standard, and $15 million under either the Equity or Market Value of Listed Securities Standard.

Following the effectiveness of the March 2025 amendments to its initial listing liquidity requirements, Nasdaq observed an increase in the number of companies applying for initial listing based on the Net Income Standard, which requires a lower MVUPHS than the other listing standards. As a result of that disparity, as well as perceived problematic trading in companies with low public floats and liquidity, on September 3, 2025, Nasdaq proposed to increase the minimum MVUPHS under the Net Income Standard from $8 million on the Global Market and $5 million on the Capital Market, respectively, to $15 million. This change became effective on January 17, 2026.

Although the changes to Nasdaq's initial listing standards regarding the MVUPHS requirement apply to all issuers, and not just to FPIs, because many FPIs have engaged in smaller sized IPOs in recent years in an effort to secure a public listing in the U.S., these changes represent a significant additional hurdle that FPIs will have to overcome when seeking a Nasdaq listing.

Higher Listing Standards Targeting China-Based Companies

In response to the sharp increase in the number of companies from China seeking to list on U.S. national securities exchanges, on September 3, 2025, Nasdaq proposed a rule change to enhance its initial listing standards by adopting stricter criteria for companies that are headquartered or incorporated in China, including Hong Kong and Macau, or whose principal business is administered in one of those jurisdictions (“China-Based Company”).¹

In proposing the rule changes, Nasdaq stated that it had identified concerns with the trading of China-Based Companies, including that: (A) a significantly disproportionate number of the matters Nasdaq has referred to the SEC or FINRA since August 2022 have been related to trading in China-Based Companies; (B) China-Based Companies that list on Nasdaq with a certain profile, such as a small offering size or a low public float percentage, may not develop sufficient public float, investor base, and trading interest to provide the liquidity necessary to promote fair and orderly trading, which may make their securities more susceptible to manipulation by bad actors; and (C) enforcement actions against persons involved in potentially manipulative trading activities regarding China-Based Companies have proven challenging, thereby compounding the risk to investors.

As per the proposed rules, a China-Based Company:

• in the case of an IPO, must offer a minimum amount of securities in a firm commitment offering that would result in gross proceeds of at least $25 million;
• in the case of a business combination, must have a minimum MVUPHS following the business combination equal to at least $25 million;
• if transferring its listing from the OTC market or from another national exchange, must have a minimum MVUPHS of at least $25 million and have traded on the other market for at least one year; and
• would be barred from direct listings on the Nasdaq Capital Market.

This targeted proposal, which could have a significantly detrimental impact on the number of new listings by China-Based Companies, remains under SEC review. If the proposal is approved, it will make it much more difficult, and potentially more expensive, for China-Based Companies, and particularly smaller China-Based Companies, to list on Nasdaq..

Nasdaq Expands Discretionary Authority to Deny Initial Listings

Citing problematic trading in certain listed companies, and noting that pending applicants, despite meeting all listing requirements, may have a profile similar to China-Based Companies, in December 2025, Nasdaq proposed a rule change that would provide it with limited discretion to deny initial listing to companies, even where the applicant meets all stated listing requirements.

Nasdaq believes that the change, which was effective immediately, is necessary because its existing rules do not allow denial of a listing based on the potential for one or more unaffiliated third parties to engage in misconduct impacting a company's securities, or to deny listing to a company based on Nasdaq's review of trading patterns of other companies with a similar profile.

Under newly effective rules, Nasdaq can deny listing based on qualitative factors that could make a security susceptible to manipulation related to concerns Nasdaq and other regulators have identified with existing public companies that are similarly situated to the company in question or based on considerations related to such company's advisors (including auditors, underwriters, law firms or other service providers), even where the company meets all stated listing requirements.

Among the factors that Nasdaq would consider in determining whether to apply this discretion are:

• where the company and its control persons, if any, are located;
• the availability of legal remedies to U.S. shareholders;
• whether the expected public float and dissemination of shares raise concerns about adequate liquidity and potential concentration;
• whether there are any perceived issues or red flags concerning the company's advisors.
• whether the company's management and board of directors have experience with U.S. public company regulations;
• whether the company has a going concern audit opinion; and
• whether there are other factors that raise concerns about the integrity of the company's board, management, significant shareholders or advisors.

If Nasdaq exercises discretion to deny a listing, it will issue a written notice describing the basis for its decision. A company will then have four business days to make a public announcement about such notice and may also, within seven days of the notice, request a hearing before the Nasdaq Hearings Panel to review the determination.

This rule change is particularly problematic for FPIs because it raises the possibility that an issuer that satisfies all of the quantitative requirements to secure a Nasdaq listing could get very deep into the IPO process, only to have its application denied because its characteristics too closely mirror those of other unrelated issuers that have been subjected to regulatory actions arising not only from the acts of those issuers but also from the acts of unrelated third parties.

New Section 16 Reporting Obligations

On December 18, 2025, President Trump signed the National Defense Authorization Act for 2026, which includes, buried deep therein, the “Holding Foreign Insiders Accountable Act” (the “HFIAA”). The HFIAA imposes insider reporting obligations under Section 16(a) of the Securities Exchange Act of 1934 (the “Exchange Act”) on directors and officers of FPIs.

Section 16(a) of the Exchange Act requires directors, officers and beneficial owners of more than 10% of a registered class of equity securities to file public reports with the SEC on Forms 3, 4 and 5 to disclose their equity holdings and transactions (including compensatory grants of equity securities). To date, FPIs have been exempt from Section 16(a) reporting obligations. With the passage of the HFIAA, directors and officers – but not 10% holders – of FPIs hereafter must comply with the requirements of Section 16(a).

Significantly, the SEC did not extend Section 16(b)'s short-swing profit liability, which requires insiders to disgorge profits on matching trades made in under a six-month period, or Section 16(c)'s prohibition on the short selling of securities by insiders, to directors and officers of FPIs.

The new filing requirements become effective on March 18, 2026. At that time, persons who currently serve as directors or officers of FPIs will have to file an Initial Statement of Beneficial Ownership on Form 3 with the SEC, disclosing their status as an insider of the FPI. Thereafter, they will have to file a Statement of Changes in Beneficial Ownership of Securities on Form 4 within two business days of the applicable acquisition or disposition of a subject company's securities. To the extent that current directors and officers of an FPI are not yet enrolled in EDGAR Next, they will need to do so in order to make the now required filings. While that process is typically uneventful, the higher volume of applications could add additional time that could impact the ability to timely file these required reports, so it is important for FPIs to begin the process of obtaining EDGAR access for these individuals as soon as possible. FPIs must also evaluate which of their officers should be designated as Section 16(a) officers, and determine whether any changes should be made to their insider trading policies or other governance procedures relating to the ownership of securities by insiders.

Conclusion

Due to the significant actions taken by Nasdaq and the SEC, the landscape for FPIs dramatically shifted during 2025, and that landscape will continue to evolve throughout 2026 and beyond. FPIs should be thoughtful and deliberate, and have the counsel of experienced and knowledgeable advisors, as they undertake a listing in the U.S. and navigate a lengthy and increasingly uncertain regulatory process. If you are a principal of or an advisor to an FPI that has accessed, or that is evaluating the possibility of accessing, the U.S. capital markets, feel free to reach out to the authors of this Legal Update, or to the other Pryor Cashman professionals with whom you normally work.

Footnote

1. Nasdaq would determine where a company is principally administered based on an analysis of the facts and circumstances, including if: (1) the company's books and records are located in that jurisdiction; (2) at least 50% of the company's assets are located in such jurisdiction; (3) at least 50% of the company's revenues are derived from such jurisdiction; (4) at least 50% of the company's directors or officers are citizens of, or reside in, such jurisdiction; (5) at least 50% of the company's employees are based in such jurisdiction; or (6) 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.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.