NASDAQ’s plan makes it difficult for small Chinese companies to list

BEIJING – The US NASDAQ Stock Exchange is planning list requirements that will make it difficult for small Chinese companies to list in New York.

As part of the proposed changes, companies operating primarily in China will need to raise at least $25 million in initial public offerings to list on the exchange, NASDAQ said late local time on Wednesday.

This move comes as tensions between the US and China boil down and the Nasdaq faces wider financial market problems.

“It will be more difficult for small Chinese businesses to go to IPO (above) Nasdaq under the new rules,” said Winston MA, adjunct professor at NYU Schools. “The new rule responds to “pump and dump” IPO cases because of the smaller float size. ”

Since the 2021 fallout around the New York listing of ride company Diddy, there have been few major Chinese IPOs in the US. But in 2024, the 35 China-based companies listed in New York are about twice the list of 17 US-based microcaps, Renaissance Capital said in December.

Microcups usually refer to stocks with a market capitalization of between $50 million and $300 million. That is, companies raised millions in their first public offering.

The changes to the rules are “positive,” said Gary Dvorchak, managing director of Blueshirt Group. “I think it’ll instill more confidence that the company is doing it for legal reasons, and it’s unlikely that there will be a game played on stocks, and that really protects the company.”

Nasdaq noted that the Chinese list poses a significant risk to US investors as it cannot take legal action “on entities and individuals involved in potentially manipulative trading activities in these securities.”

“In addition, the exchange observes a high percentage of compliance concerns among Chinese companies listed on NASDAQ in connection with IPOs offering sizes under $25 million,” Nasdaq said.

The Securities and Exchange Commission must formally approve the NASDAQ proposal. According to Nasdaq, companies already participating in the IPO process will take 30 days to complete the process based on previous rules, but all subsequent listings must comply with the changes.

The New York Stock Exchange, which normally handles much larger IPOs, did not immediately respond to requests for comment outside of US hours. The SEC and China’s Securities Regulation Commission did not respond immediately.

The NASDAQ listing requirements state that it is “another example of many ways in which business, trade and investment relationships between the two countries are becoming more complicated and difficult.”

In fact, changes to rules for the New York Exchange will slap new punitive tariffs on some U.S. optical fiber producers on Thursday, following the announcement in Beijing late Wednesday.

“China says: We are ready to fight fire with fire,” Olson said. “Trade ceasefires are temporary band-aids. They can collapse at any time.”

China’s Commerce Department cited a six-month investigation, which revealed that some US exporters had skirted Chinese anti-dumping revies by selling modified versions of fiber optics.

Fiber Optic Producer located in New York Corning Currently, we face 37.9% obligations with exports of products to China, OFS Fitel 33.3% and Draka Communications Americas 78.2%.

Our revenue report shows that Corning counts China as the largest revenue source outside the US across its business, contributing 32% of its total revenue in 2024.

The company and the US Department of Commerce did not immediately respond to requests for comment.

China has a $57 million deficit in optical fiber trade with the US in the first seven months of the year, according to official customs figures.

That imbalance may have given Beijing a “technical pretext to act,” said Tianchen Xu, a senior economist at the Economist Intelligence Unit, noting that items China imports from the US are more sophisticated and therefore more expensive per item.

“The fire exchange (between the US and China) will continue in many ways,” Xu predicts, potentially derailing plans for a meeting between the two countries’ presidents.

This decision came the day after Washington was revoked Taiwan Semiconductor Manufacturing Co’s Permissions to ship key chip-making equipment and technologies to manufacturing plants in China are the latest moves to curb Beijing’s semiconductor advances.

China’s optical fiber tariffs have “displeased” with recent US moves, restricting Beijing’s access to advanced chips and limiting participation in the submarine cable supply chain, according to Alfredo Montufar-Helu, managing director of advisory firm Greenpoint.

But the tariffs “have sufficient targets and suppression to avoid crushing several months of trade negotiations, and also serve as a reminder that China’s leverage extends beyond rare earths,” Monttufer Hell said.

China has tried to encourage domestic financial development, but has also been keen to control capital outflows, including overseas inventory products. New policies over the past three years have required Chinese companies to obtain approval for overseas listings, especially if their businesses have a large domestic user base.

The Nasdaq move has taken a major step in expanding regulatory scrutiny with small Chinese IPOs over the past few years.

The Hong Kong Stock Exchange and local securities regulators said that underwriters of IPOs with market capitalization of less than $600 million in 2020 reached 12% to 12% in 2020 over three years of the average committee of four years.

Then, in November 2022, US financial industry regulators warned investors of a significant extraordinary price rise or shortly after the IPO date of certain small issuers, notables specifically referring to China.

FINRA added that it was “concerned” about the way foreigners opened accounts to US broker-dealers to invest in IPOs, and placed “operating orders and transactions to inflate aftermarket prices.”

In the FINRA podcast dated November 12, 2024, Special Investigation Force Peter Gonzalez said that the “lamp and dump” scheme has evolved, occurring weeks or months after the IPO, rather than days.

Correction: This story was updated to reflect that NASDAQ plans to require Chinese companies to raise at least $25 million in their initial public offering to list them on the exchange.