Nasdaq wants Chinese companies to pay $25 million per U.S. IPO

BEIJING — The Nasdaq inventory trade within the U.S. is planning to make it more durable for small Chinese language corporations to listing in New York, after a flood of tiny preliminary public choices.

As a part of proposed adjustments, corporations working primarily in China will need to pay at least $25 million from their public providing, Nasdaq stated late Wednesday native time.

The transfer comes as tensions between the U.S. and China simmer, and because the Nasdaq faces broader monetary market points.

“It will likely be tougher for small Chinese language corporations to go IPO [on the] Nasdaq beneath the brand new rule,” stated Winston Ma, adjunct professor at NYU Faculty of Regulation. “The brand new rule reacts to some IPO circumstances of ‘pump and dump’ on account of small float measurement.”

There have been been few giant Chinese language IPOs within the U.S. because the fallout round ride-hailing firm Didi’s New York itemizing in 2021. However in 2024, 35 small China-based corporations listed in New York, roughly twice the 17 U.S.-based microcap listings, Renaissance Capital stated in December.

Microcaps sometimes seek advice from shares with market capitalizations of between $50 million and $300 million, that means the businesses raised just a few million within the preliminary public providing. A $25 million charge would wipe out a lot of the cash raised in a small IPO.

The rule change is “a constructive,” stated Gary Dvorchak, managing director at Blueshirt Group, whose enterprise consists of advising Chinese language corporations on IPOs. “I believe it will instill extra confidence that the businesses are itemizing are doing it for authentic causes and there is much less more likely to be video games being performed with the inventory and it actually protects the businesses as nicely.”

Nasdaq famous the Chinese language listings pose better threat to U.S. traders on account of U.S. incapability to take authorized motion “in opposition to entities and people concerned in doubtlessly manipulative buying and selling actions in these securities.”

“Additional, the Alternate has noticed that Chinese language corporations itemizing on Nasdaq in reference to an IPO with an providing measurement under $25 million have a better price of compliance considerations,” Nasdaq stated.

The U.S. Securities and Alternate Fee must formally approve Nasdaq’s proposal. Firms already within the IPO course of would then have 30 days to finish the method beneath prior guidelines, Nasdaq stated, whereas all subsequent listings must adjust to the adjustments.

The New York Inventory Alternate, which usually solely handles far bigger IPOs, didn’t instantly reply to a request for remark exterior of U.S. enterprise hours. The SEC and China’s Securities Regulatory Fee didn’t instantly reply both.

The Nasdaq’s itemizing cost requirement is “one other instance of the multitude of how wherein conducting enterprise, commerce and funding relations between the 2 nations is rising extra advanced and tough,” stated Stephen Olson, a visiting senior fellow on the ISEAS-Yusof Ishak Institute.

In reality, the New York trade’s rule change got here on the heels of Beijing’s announcement late Wednesday that it will slap new punitive tariffs on some U.S. optical fiber producers, efficient Thursday.

“China is saying: we’re ready to struggle hearth with hearth,” Olson stated. “The commerce truce is only a momentary band-aid. It may collapse at any time.”

China’s Ministry of Commerce cited a six-month investigation that discovered that some U.S. exporters had skirted China’s anti-dumping levies by promoting a modified model of the optical fiber.

New York-headquartered optical fiber producer Corning now faces a 37.9% responsibility on the product’s exports to China, OFS Fitel 33.3% and Draka Communications Americas 78.2%.

For its general enterprise, Corning counted China as its largest income exterior the U.S., contributing 32% of its whole gross sales income in 2024, in response to the corporate earnings report.

The corporate and the U.S. Commerce Division didn’t instantly reply to a request for remark.

China has a deficit of $57 million in optical fiber commerce with the U.S. within the first seven months this yr, in response to the official customs figures.

That imbalance might have given Beijing the “technical pretext to behave,” stated Tianchen Xu, senior economist at Economist Intelligence Unit, noting that the objects that China imports from the U.S. are largely extra superior and thus costlier per merchandise.

“The trade of fireplace [between the U.S. and China] will proceed in some ways,” Xu predicts, which could derail plans for a gathering between the 2 nations’ presidents.

The choice got here a day after Washington revoked Taiwan Semiconductor Manufacturing Co’s authorization to ship key chipmaking gear and expertise to its manufacturing plant in China, the most recent transfer to curb Beijing’s semiconductor advances.

China’s optical fiber tariff “alerts displeasure” on latest U.S. strikes to limit Beijing’s entry to superior chips and participation within the undersea cable provide chain, stated Alfredo Montufar-Helu, managing director at advisory agency GreenPoint.

However the tariff is “additionally focused and restrained sufficient to keep away from shattering months of commerce negotiations. And it additionally serves as a reminder that China’s leverage extends past uncommon earths,” Montufar-Helu stated.

Whereas China has sought to encourage home monetary improvement, it has additionally been eager to manage capital outflows, together with inventory choices abroad. New insurance policies within the final three years have required Chinese language corporations to get the securities regulator’s approval for abroad listings, particularly if their enterprise has a big home person base.

Stateside, Nasdaq’s transfer marks an enormous step in what’s been rising regulatory scrutiny on tiny Chinese language IPOs over the past a number of years.

Underwriters for IPOs with market capitalizations under $600 million noticed their common fee triple over four years to 12% in 2020, the Hong Kong inventory trade and native securities regulator stated in a joint assertion again in Might 2021.

Then in November 2022, the Monetary Trade Regulatory Authority within the U.S. warned traders about “significant unusual price increases on the day of or shortly after the IPOs of certain small-cap issuers, most of which contain issuers with operations in different nations.” The discover talked about China particularly.

FINRA added it “has considerations” about how international nationals have opened accounts at U.S. broker-dealers to put money into IPOs after which positioned “manipulative orders and trades to inflate aftermarket costs.”

In a FINRA podcast dated Nov. 12, 2024, Peter Gonzalez of the particular investigations unit stated the “ramp and dump” schemes have evolved — now occurring weeks or months after the IPO, as a substitute of just a few days.