Small Chinese companies seeking initial public offerings in the U.S. are set to face greater headwinds with the Nasdaq set to tighten restrictions.
Changes in the listing rules are targeted at small Chinese companies, many of which face significantly greater liquidity risk due to the high concentration of ownership amongst several shareholders, who are often those closely linked with a firm’s owner or executives.
This has, in turn, diminished their attractiveness towards large institutional investors, one of the key segments in Nasdaq’s client base.«One critical quality of our capital markets is that we provide non-discriminatory and fair access to all eligible companies,» a Nasdaq spokeswoman said in a «Reuters» report, without commenting specifically on the impact of the listing rule changes.
«The statutory obligation of all U.S. equity exchanges to do so creates a vibrant market that provides diverse investment opportunities for U.S. investors.»
Impact Already Felt
The impact of the listing rule changes is nonetheless already being felt with Chinese prospects committing to greater shareholder diversity. Happiness Biotech Group CEO Xuezhu Wang, for example, said he promised Nasdaq to ensure that at least 30 percent of its IPO would come from U.S. investors in order to list on the exchange.
Since 2000, Chinese firms have raised over $70 billion in U.S. stock markets, according to Refinitv data. 19 Chinese firms listed on Nasdaq in 2018, up from eight in 2017, Dealogic data showed.
New York Stock Exchange Too?
The New York Stock Exchange is also believed to be reviewing Chinese listings, according to anonymous sources, but have yet to introduce rules similar to Nasdaq.
«The New York Stock Exchange has a longstanding commitment to good governance, rigorously adhering to both the letter and spirit of our listing standards,» a New York Stock Exchange spokesman said.
Trump Moves
This current wave of scrutiny coincides with recent reports that the White House was considering delisting Chinese companies from U.S. stock exchanges. Treasury officials were quick to follow up and not that President Trump was not considering to block U.S.-based Chinese listing «at this time».
Anonymous sources close to the matter added that Nasdaq’s listing rule changes were not the result of discussions with the White House. A White House spokesman declined to comment on the issue.
