Problem Background and Overview
From late 2024 to early 2025, cases were observed on the Nasdaq market where companies with the fundamental problem of being unable to raise sufficient capital were utilizing sales by existing shareholders (Resale Shares) to narrowly meet the MVUPHS requirement and achieve a listing.
Typically, small and medium-sized ventures, often in the medical and biotech sectors, would limit their capital raising from the public offering to a few million dollars, filling the majority of the requirement with Resale orders. As a result, the opening price on the first day of the IPO would fall significantly below the offering price, and in some instances, the stock price plummeted by more than 50% within a short period. These “window-dressing IPOs” were strongly criticized from an investor protection perspective and became a factor in eroding market confidence.
Furthermore, a research panel conducted prior to the change reported analytical findings that “companies including Resale Shares in their calculation exhibit high initial price volatility” and “their contribution to market liquidity is low.” Based on these realities, Nasdaq embarked on a fundamental review of the MVUPHS requirement.
Introduction
Nasdaq Listing Rules 5405 and 5505 impose a certain MVUPHS (Market Value of Unrestricted Publicly Held Shares) requirement on companies conducting an IPO or uplisting from the OTC market. However, this amendment shifts the standard, requiring the threshold to be met “solely by the proceeds from the public offering.” Rather than a temporary, technical clearance, this new rule emphasizes substantial capital demand from market participants, seeking to maintain a stable and sound listing environment.
Definition of MVUPHS Requirement and Terminology
MVUPHS (Market Value of Unrestricted Publicly Held Shares) refers to the market value of shares that are freely tradable in the market at the time of listing and is composed of the following elements:
- Market Value: The market valuation using the closing price of the day or the most recent trading day’s closing price.
- Unrestricted Shares: Shares held by existing shareholders whose lock-up restrictions have been lifted and are registered for sale. However, under the amendment, these are now excluded from the MVUPHS calculation.
- Publicly Held: Shares held by investors other than officers and large shareholders (holding 10% or more).
The pre-listing MVUPHS is typically calculated from the public offering price and the number of shares issued as stated in the prospectus.
- Example: If 5 million shares are issued at an offering price of $10, MVUPHS = $10 × 5,000,000 shares = $50,000,000
Key Points of the Amendment: Exclusion of Resale Shares and Expansion of Public Offering Size Requirements
1. Exclusion of Resale Shares
Previously, a company could list if it met the MVUPHS requirement by combining both the issuance of new shares and the sale of existing shares by shareholders (Resale Shares). Following the amendment, however, only shares newly issued and sold through the public offering can be included in the MVUPHS calculation. This effectively makes “window-dressing IPOs” dependent on Resale Shares impossible.
2. Expansion of Public Offering Size Requirements for the Capital Market
On the Nasdaq Capital Market, one of the following two standards must be met by the public offering:
- Net Income Standard: Raise a minimum of $5 million.
- Equity or Market-Value Standard: Raise a minimum of $15 million.
Previously, a flat requirement of $4 million, which could include Resale Shares, was sufficient. The amended rules significantly raise this required capital amount.
History of the Amendment and SEC Approval Process
The MVUPHS requirement amendment proposed by Nasdaq was rapidly reviewed and approved by the SEC from the perspective of investor protection and market stability. Against the backdrop of cases manifesting significant initial price volatility and liquidity risk, the rule was implemented on April 11, 2025, just 3.5 months after its publication in the Federal Register.
It is understood that the SEC, concerned about the repeated stock price plummets and liquidity shortages caused by Resale-dependent IPOs, sought to mitigate these risks through an expedited review and approval.
Practical Impact on Companies and Countermeasures
A. Redesign of Capital Raising Strategy
With the increased public offering size, more precise financial planning is required from the capital policy formation stage. If fundraising falls below expectations, the risk of failing to gain listing approval increases. Therefore, companies should formulate a fundraising plan that anticipates multiple scenarios.
B. Strengthening IR Structure and Marketing
Information disclosure and communication with investors will determine success. It is effective to combine diverse methods, not just roadshows and conference calls, but also webinars for demand generation and investor-exclusive meetups.
C. Establishing Internal Controls and Compliance
Ensuring the accuracy of information in the prospectus and establishing a system to respond to SEC inquiries are essential. As the exclusion of Resale Shares will draw greater scrutiny, companies must strengthen their disclosure processes in coordination with internal audit departments and external auditors.
Investor Perspective: Reassurance and Points of Caution
This amendment provides investors with a greater sense of security than before. First, because the capital size based on actual demand (raised via the public offering) is guaranteed, the risk of a sharp initial price drop due to a supply/demand imbalance is reduced. Second, it becomes easier to assess the impact of stock dilution associated with large-scale public offerings in advance, increasing the importance of discerning the impact on medium-to-long-term returns. Furthermore, more precise investment decisions are possible by comparing standards with other markets (like the Global Market) and by conducting comparative analysis of the initial performance of companies under the new standard versus those that previously relied heavily on Resale Shares.
Conclusion
The MVUPHS requirement amendment of April 11, 2025, is a measure demonstrating Nasdaq’s top priority of improving market quality and protecting investors. By companies adopting strategies and strengthening IR for larger public offerings, and by investors making decisions that emphasize true supply/demand balance and dilution risk, all parties can contribute to the formation of a healthier market.
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