Nasdaq Updates Listing Regulations for Smaller IPOs and Chinese Companies

NASDAQ Updates Rules for Small IPOs

(Bloomberg) – NASDAQ Inc. is making significant changes to the regulations that companies looking to engage in small initial public offerings must follow to list and remain on exchanges.

According to a statement released on Wednesday, exchange operators are suggesting a new set of standards that small businesses listed on NASDAQ will need to comply with. This proposal also introduces extra requirements specifically for a new group of Chinese-based companies.

These changes come in response to broader concerns surrounding the volatile behavior of public companies with smaller market capitalizations and low liquidity levels. For instance, shares of Regencell Bioscience Holdings Ltd., a Hong Kong-based traditional Chinese medicine firm, surged a staggering 82,000% this year before declining significantly. In another example, small healthcare company Pheton Holdings Ltd. plummeted 90% in value within minutes.

The exchange noted that these adjustments are part of a thorough assessment of trading activities, particularly regarding emerging patterns that could indicate potential pump-and-dump schemes in the U.S. market.

Last year, NASDAQ increased its scrutiny of small IPOs from China and Hong Kong to curb extreme price fluctuations post-listing. Many Asian small businesses are turning to American exchanges to secure funding beyond their own markets.

Joseph Saluzzi, co-head of stock trading at Themis Trading, expressed, “It’s encouraging to see the exchange act as a self-regulatory body during this period of rising uncertainty.”

NASDAQ has submitted the proposed regulations to the Securities and Exchange Commission for approval, detailing three primary changes to current listing standards. The first aims to elevate the requirements for companies wishing to list, raising the minimum public float for the smallest companies to $15 million, compared to the previous threshold of $5 million.

The second proposed change will hasten the process for suspending and delisting companies with minimal market value for their listed securities.

The final adjustment is specifically tailored for Chinese firms, mandating that public offerings must generate at least $25 million in revenues to qualify for the new list.

Additionally, a recent report indicated that over 280 Chinese companies are currently listed on major U.S. stock exchanges, totaling approximately $1.1 trillion in value. Small-cap issuers have increasingly dominated offshore listing endeavors, while larger IPOs from China continue to be absent from U.S. exchanges. The report highlighted that, concerning the average IPO from China in 2024, only $50 million was raised compared to over $300 million in 2021.