INDUSTRY NEWS WRAP: Nasdaq to crack down on small Chinese listings

The exchange operator’s proposed new rules would require all new Chinese IPOs to raise at least $25 million

By Doug Young

The Nasdaq on Wednesday proposed new listing standards that would halt most of the small IPOs by Chinese firms on the exchange, and make it easier to remove many such companies that are already listed there.

The stricter new standards could remove a majority of the Chinese companies now traded on the Nasdaq, many of which have thin liquidity, small floats and are worth less than $50 million. The campaign is separate from another crackdown by the U.S. four years ago under the Holding Foreign Companies Accountable Act, which threatened to delist all Chinese companies from Wall Street unless their independent auditor records were made more accessible to the U.S. securities regulator.

Under the Nasdaq’s latest proposed new rules, the public float for all new listings would need to be worth at least $15 million, according to an announcement on the exchange’s website. Chinese companies making new listings on the exchange would also need to raise at least $25 million. Additionally, the Nasdaq would implement an accelerated process for suspending and delisting companies whose listed securities are worth less than $5 million.

“These enhancements reflect our ongoing commitment to evolve our standards in step with market realities and to lead by example in promoting fair and orderly markets,” said Nasdaq vice president John Zecca. “By increasing our standards for the minimum public float and the public offering raise in certain new listings, it provides a healthier liquidity profile for public investors, while still making emerging companies available to investors through our exchange.”

The Nasdaq said the new requirements were designed “specifically for companies principally operating in China,” and were aimed at protecting investors from markets where the U.S. securities regulator didn’t have easy access. Following the U.S. passage of the Holding Foreign Companies Accountable Act, the U.S. and Chinese securities regulator signed a landmark information-sharing agreement in 2022 designed to give American regulators better access to the audit records of U.S.-listed Chinese companies.

The Nasdaq said it is submitting its proposal to the U.S. Securities and Exchange Commission for review, and, pending the regulator’s approval, the new rules would immediately take effect for all new listings. If that happens, companies currently in the IPO process will have 30 days to complete their listings under prior rules. Otherwise, they will be subject to the new requirements.

Chinese companies made 36 IPOs in the U.S. in the first half of the year, nearly all of those on the Nasdaq, raising a collective $841 million, according to Ernest & Young. But more than half of that total came from a single listing by milk tea chain Chagee (CHA.US), which raised $441 million. That means the other 35 listings averaged just $11.4 million each – well below the $25 million threshold that would take effect under the Nasdaq’s new rules.

Many of the small Chinese companies that list in the U.S. also only float a very small portion of their stock, often less than 10%, resulting in low liquidity. That frequently results in big price swings that harm smaller, less sophisticated investors, as many stocks often lose half their value or more in the months after their trading debuts.

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