Nasdaq Revamps Listing Rules For Small IPOs And Chinese Firms

Nasdaq Inc. is revamping rules that companies pursuing small initial public offerings must follow to list and continue to be traded on its exchanges, the latest effort to protect investors from wild swings in the market and improve liquidity.

The exchange operator proposed a set of new standards that small companies listing on Nasdaq must abide by, according to a statement Wednesday. Its proposal also calls for additional requirements for new listings of companies with operations based in China. 

Nasdaq’s changes come amid broader concerns over eye-popping moves in publicly traded companies with relatively small market capitalization and thin liquidity. For example, shares of Regencell Bioscience Holdings Ltd., a Hong Kong-based traditional Chinese medicine company with no sales, exploded 82,000% higher this year before retreating. Pheton Holdings Ltd., another tiny Chinese health care stock, lost 90% of its market value in a matter of minutes.

The exchange said its moves follow a proactive review of trading activity, “particularly emerging patterns associated with potential pump-and-dump schemes in U.S. cross-market trading environments.”

Last year, Nasdaq stepped up its scrutiny of small IPOs from China and Hong Kong specifically, to avoid the wild price swings that followed a handful of deals. A growing number of small firms from Asia have turned to the American exchange to raise money outside their home market. 

The proposed rules, which Nasdaq said are being submitted to the US Securities and Exchange Commission for approval, call for three changes to their current listing standards. The first would raise the bar for companies trying to list on the exchange, with the minimum company public float — under the net income standard — increased to $15 million. The current threshold is at least $5 million. 

The second change would accelerate the process for suspending and de-listing companies with a market value of listed securities below $5 million, Nasdaq said. 

The third and final change is specific to Chinese firms, which Nasdaq would require at least $25 million public offering proceeds for new listings.

More than 280 Chinese companies are listed on major US stock exchanges including Nasdaq and the New York Stock Exchange with a total market capitalization of $1.1 trillion, according to a March report from the US-China Economic and Security Review Commission. In recent years, small-cap issuers made up the vast majority of the offshore listing activity as Chinese blockbuster, multibillion-dollar IPOs remain absent from US exchanges. The average Chinese IPO in 2024 raised just $50 million, down from over $300 million in 2021, according to the report.