New SEC & Nasdaq Rules Raise the Bar for Foreign Issuers and Investor Protection

These recent regulatory shifts by the SEC and Nasdaq reflect a concerted effort to bolster investor protection and market integrity in response to recurring abuses—especially involving cross-border fraud, low-liquidity issuers, and China-based or affiliated companies. Below are strategic implications and key open questions.

1. Regulatory tightening around foreign issuers and gatekeepers. The establishment of the SEC’s Cross-Border Task Force is explicitly designed to investigate companies based outside the U.S.—notably China—and the professional services firms (auditors, underwriters) that help them access U.S. capital markets [1][6]. For investment banks underwriting IPOs with foreign issuers, this raises both compliance and reputational risk. Due diligence must account not only for financials but also for jurisdictional disclosure risks, governmental control, audit transparency, and the integrity of gatekeepers.

2. Nasdaq’s proposed listing standard reforms raise the bar materially. Under the new proposals, issuers listing under the net income standard must show a $15 million unrestricted public float; those operating principally in China will need at least $25 million in IPO proceeds; and issuers with market value below $5 million face accelerated suspension and possible delisting with reduced or no cure periods [3][4]. These tightenings will force many smaller or lower-profile issuers to either find other listing venues or increase the size of offerings/float. Underwriters may need to calibrate offerings to meet higher thresholds or risk noncompliance post-listing.

3. Policy shift on mandatory arbitration provisions. The SEC’s September 17, 2025 policy statement reversed its decades-old practice of denying acceleration of registration statements due solely to the existence of mandatory arbitration clauses in charters or bylaws. Now, what matters is how well the clauses are disclosed [5]. This has implications for governance, litigation exposure, and how investors perceive such contracts. State law (e.g., Delaware’s new restrictions from August 2025) may limit enforceability in certain jurisdictions, creating mismatches between federal policy and state corporate governance landscapes.

4. Strategic implications for market participants. Multi-dimensional risks arise: (a) foreign-issuer sponsors and gatekeepers could face enhanced scrutiny, enforcement actions, or liability. (b) Small and mid-cap companies—especially those relying on China exposure or that currently list with small floats—may find U.S. market access increasingly challenging. (c) Institutional investors may push for higher disclosure and transparency benchmarks for any fund exposure to foreign or low-float issuers.

Open questions: How quickly will the SEC task force produce enforcement actions, particularly in jurisdictions with limited cooperation? Will Nasdaq’s proposals survive SEC approval, and how long will transitional periods last? How will state laws (like Delaware’s Section 115(c)) interact with federal policy on arbitration provisions? And what balance will be struck between capital formation and regulation so as not to push companies toward less transparent or overseas markets?