Nasdaq plans will make it harder for small Chinese firms to list

BEIJING — The Nasdaq inventory alternate within the U.S. is planning itemizing necessities that may make it tougher for small Chinese language firms to listing in New York, after a flood of tiny preliminary public choices.

As a part of proposed adjustments, firms working primarily in China might want to increase a minimum of $25 million in preliminary public choices to listing on the alternate, Nasdaq mentioned 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 harder for small Chinese language firms to go IPO [on the] Nasdaq beneath the brand new rule,” mentioned Winston Ma, adjunct professor at NYU Faculty of Regulation. “The brand new rule reacts to some IPO instances of ‘pump and dump’ because of small float dimension.”

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

Microcaps usually seek advice from shares with market capitalizations of between $50 million and $300 million, which means the businesses raised just a few million within the preliminary public providing.

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

Nasdaq famous the Chinese language listings pose larger danger to U.S. buyers because of U.S. incapacity to take authorized motion “towards entities and people concerned in probably manipulative buying and selling actions in these securities.”

“Additional, the Trade has noticed that Chinese language firms itemizing on Nasdaq in reference to an IPO with an providing dimension under $25 million have the next price of compliance considerations,” Nasdaq mentioned.

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

The New York Inventory Trade, which usually solely handles bigger IPOs, mentioned it “has at all times had the platinum normal by way of itemizing necessities, and we’re completely happy to see others elevating their very own bar.”

The SEC and China’s Securities Regulatory Fee didn’t reply to CNBC’s request for remark.

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

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

“China is saying: we’re ready to struggle fireplace with fireplace,” Olson mentioned. “The commerce truce is only a non permanent 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% obligation on the product’s exports to China, OFS Fitel 33.3% and Draka Communications Americas 78.2%.

For its total enterprise, Corning counted China as its largest income outdoors the U.S., contributing 32% of its complete gross sales income in 2024, in line with the corporate earnings report.

“Corning has not, nor will it ever, dump merchandise in China nor search to bypass these measures,” a spokesperson for Corning informed CNBC through an e mail, including the corporate doesn’t anticipate a fabric affect on the enterprise as “there are very small quantities of fiber imported into China which are topic to duties that this can develop upon.”

“We stay totally dedicated to the Chinese language optical communications market and our workers at our many places in China,” the corporate mentioned.

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 12 months, in line with the official customs figures.

That imbalance might have given Beijing the “technical pretext to behave,” mentioned 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 dearer per merchandise.

“The alternate 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 international locations’ presidents.

The choice got here a day after Washington revoked Taiwan Semiconductor Manufacturing Co’s authorization to ship key chipmaking tools 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 current U.S. strikes to limit Beijing’s entry to superior chips and participation within the undersea cable provide chain, mentioned 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 mentioned.

Whereas China has sought to encourage home monetary growth, it has additionally been eager to regulate capital outflows, together with inventory choices abroad. New insurance policies within the final three years have required Chinese language firms 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 4 years to 12% in 2020, the Hong Kong inventory alternate and native securities regulator mentioned in a joint assertion again in Could 2021.

Then in November 2022, the Monetary Business Regulatory Authority within the U.S. warned buyers about “important uncommon worth will increase on the day of or shortly after the IPOs of sure small-cap issuers, most of which contain issuers with operations in different international locations.” The discover talked about China particularly.

FINRA added it “has considerations” about how overseas nationals have opened accounts at U.S. broker-dealers to spend money on 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 mentioned the “ramp and dump” schemes have advanced — now occurring weeks or months after the IPO, as an alternative of just a few days.

Correction: This story has been up to date to mirror that Nasdaq is planning to require Chinese language firms to boost a minimum of $25 million in preliminary public choices to listing on the alternate.