In a move to limit unwanted stock market flotations, US exchange operator NASDAQ Inc announced the implementation of new measures that will essentially crackdown on the listings of smaller Chinese firms.
The company intends to increase the restrictions placed on initial public offering (IPOs) of smaller Chinese firms, especially those that raise more capital from Chinese sources as opposed to those from US investors.
According to regulatory filings and reports from investment bankers, NASDAQ intends to target listings of Chinese companies that are trading poorly following their US debut. Some of these companies apparently stay in the hands of a few insiders, resulting in low liquidity.
These listing often do not attract the attention of large institutional investors, most of which are NASDAQ's biggest customers. As an example, Chinese online pharmacy network operator 111 Inc listed on the NASDAQ last year through a $100 million IPO. Since its listing, the company mainly sold its shares to sources already affiliated with the company, such as those with active connections to the firm's executives.
Some of the other companies that were specifically named by reports as possible targets of the new crackdown include education provider Puxin Ltd, pet product manufacturer Dogness International Corp, and digital incubator Ruhnn Holding Ltd. These companies had listed on the NASDAQ in the last two years and have largely been unpopular with US investors. The majority of the shares that were sold by these companies were to investors from China.
A NASDAQ spokeswoman stated that the move is to ensure more quality listings on the capital market. The representative also clarified that the measure is non-discriminatory and the exchange does provide fair access to all eligible companies who want to be listed.
The move to crack down on smaller listings, particular those from Chinese companies comes at the heels of reports revealing that the Trump administration is considering the possible measure of limiting Chinese listings in US equities markets.
The proposed measure is part of the administration's plan to limit the flow of US capital into China. NASDAQ's decision could have a lasting impact on the already fragile trade relations between China and the United States.
Following NASDAQ's announcement, share prices of Chinese companies listed in the US experienced a continued decline as prices were already down following news of the Trump administration's proposed measures.
The announcement from the US Treasury over the weekend did little to stave off the downward direction of the Chinese stocks. US Treasury officials stated on Saturday that it was not considering the measure to block Chinese companies from US stock exchanges.