New rules let the exchange reject IPOs that meet listing requirements if it sees red flags for possible market manipulation
Nasdaq is giving itself more power to shut out risky IPOs, even when applicants meet its formal listing criteria, in a bid to head off stock manipulation and extreme volatility before it hits the market.
According to Reuters, the exchange filed a rule change with the US Securities and Exchange Commission (SEC) that would allow it to block an IPO if it sees red flags suggesting a company’s shares could be vulnerable to misconduct.
The move focuses in part on companies from opaque jurisdictions tapping US markets for better valuations and follows years of scrutiny of wild moves in thinly traded small caps.
As per Bloomberg, Nasdaq will now consider where a company is based, whether US investors have meaningful legal recourse in that jurisdiction, and whether any advisers — including auditors, underwriters and law firms — have been involved in other deals that later showed “problematic or unusual trading.”
The exchange will also weigh the integrity and experience of the board, management, major shareholders and advisers.
Nasdaq said in the filing that it needs explicit authority to deny listings where the surrounding ecosystem appears prone to abuse, according to Reuters.
The exchange noted that current rules do not let it reject companies based on trading patterns of similar issuers or concerns tied to advisers, and that it is seeking additional discretion to do so.
Bloomberg reported that the proposed factors are meant to clarify when Nasdaq believes an applicant’s securities may be more susceptible to manipulation.
The filing states that the rule will become effective immediately, even though such changes typically do not become operative for 30 days unless the SEC accelerates the timeline.
Bloomberg said the SEC did not immediately comment.
The changes come after a series of extreme price moves in small, foreign issuers.
Reuters reported that some smaller China-based companies that raised modest amounts in their IPOs have surged as much as 2,000 percent on debut before plunging soon after.
A pump-and-dump scheme involves artificially pushing a stock higher and then selling into the spike, leaving remaining investors with steep losses.
Bloomberg highlighted that Regencell Bioscience Holdings Ltd., a Hong Kong‑based traditional Chinese medicine company with no sales, climbed 46,000 percent through mid‑June before pulling back, and said in October that the US Department of Justice was probing trading in its shares.
Another example, Pheton Holdings Ltd., a small Chinese health‑care stock, lost 90 percent of its market value in minutes in July.
These latest rules build on earlier steps.
In September, Nasdaq raised minimum public float requirements for some new listings and sped up the delisting process for thinly traded companies as part of a broader crackdown on potential manipulation, according to Reuters.
Bloomberg added that Nasdaq has also proposed stricter standards for small issuers and extra requirements for new listings with operations in China, a plan still awaiting SEC approval.
The SEC has suspended trading in a dozen Nasdaq-listed Asia-based microcaps since the end of September over potential share price manipulation, warning in most cases about fraudsters using social media to inflate shares.
In October, the US Financial Industry Regulatory Authority said it was examining broker‑dealers involved in taking small foreign companies public.
