Comment Letter on Nasdaq’s Proposed Additional Initial Listing Criteria for Companies Primarily Operating in China

Key Takeaways

• CII backs Nasdaq’s $25 M minimum proceeds rule
• Calls for rule to cover Cayman‑Island micro‑caps
• VIE structures hide transparency from U.S. investors
• Weak Cayman corporate law raises fraud risk
• SEC decision will influence foreign‑issuer listing standards

Summary

The Council of Institutional Investors (CII) submitted a comment letter supporting Nasdaq’s proposed rule that adds an initial listing requirement of at least $25 million in proceeds for companies primarily operating in China. While endorsing the rule’s aim to curb abnormal trading in micro‑cap Chinese stocks, CII urges the SEC to broaden the criteria to include the smallest micro‑cap issuers incorporated in the Cayman Islands and similar high‑risk jurisdictions. The letter highlights the prevalence of VIE structures and weak corporate‑law protections that expose U.S. investors to fraud and enforcement challenges. CII’s stance adds weight to the SEC’s pending decision on the Nasdaq proposal.

Pulse Analysis

Nasdaq’s September 2025 proposal to impose a $25 million minimum proceeds threshold on newly listed Chinese companies reflects growing alarm over micro‑cap volatility and opaque corporate structures. The Council of Institutional Investors, representing trillions in public‑pension assets, has publicly endorsed the measure, citing the surge in abnormal trading patterns and the systemic risk posed by Variable Interest Entity (VIE) arrangements that sidestep U.S. disclosure rules. By targeting the smallest Chinese issuers, Nasdaq aims to restore market integrity and safeguard retirement portfolios that form the backbone of Main Street investing.

CII’s comment goes a step further, urging regulators to extend the rule to micro‑cap firms incorporated in the Cayman Islands and other jurisdictions known for lax shareholder protections. Academic and industry analyses consistently rank the Cayman Islands as the weakest corporate‑law environment for investor rights, making it a favored domicile for Chinese firms seeking to evade U.S. oversight. Broadening the criteria would close a loophole that enables fraudulent reverse‑stock‑splits, pump‑and‑dump schemes, and opaque financial reporting, thereby reducing the likelihood of costly delistings and investor losses.

The SEC’s forthcoming ruling will set a precedent for how foreign private issuers are evaluated on U.S. exchanges. A stricter, jurisdiction‑agnostic approach could compel many offshore micro‑caps to either meet higher capital thresholds or seek alternative listings, reshaping capital‑raising dynamics for Chinese tech and e‑commerce firms. For institutional investors, clearer standards translate into reduced compliance risk and greater confidence in cross‑border equity exposure, reinforcing the broader trend toward heightened regulatory scrutiny of global securities markets.