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

BEIJING — The Nasdaq stock exchange in the U.S. is planning listing requirements that will make it harder for small Chinese companies to list in New York, after a flood of tiny initial public offerings.

As part of proposed changes, companies operating primarily in China will need to raise at least $25 million in initial public offerings to list on the exchange, Nasdaq said late Wednesday local time.

The move comes as tensions between the U.S. and China simmer, and as the Nasdaq faces broader financial market issues.

“It will be more difficult for small Chinese companies to go IPO [on the] Nasdaq under the new rule,” said Winston Ma, adjunct professor at NYU School of Law. “The new rule reacts to some IPO cases of ‘pump and dump’ due to small float size.”

There have been been few large Chinese IPOs in the U.S. since the fallout around ride-hailing company Didi’s New York listing in 2021. But in 2024, 35 small China-based companies listed in New York, roughly twice the 17 U.S.-based microcap listings, Renaissance Capital said in December.

Microcaps typically refer to stocks with market capitalizations of between $50 million and $300 million, meaning the companies raised only a few million in the initial public offering.

The rule change is “a positive,” said Gary Dvorchak, managing director at Blueshirt Group, whose business includes advising Chinese companies on IPOs. “I think it’s going to instill more confidence that the companies are listing are doing it for legitimate reasons and there’s less likely to be games being played with the stock and it really protects the companies as well.”

Nasdaq noted the Chinese listings pose greater risk to U.S. investors due to U.S. inability to take legal action “against entities and individuals involved in potentially manipulative trading activities in these securities.”

“Further, the Exchange has observed that Chinese companies listing on Nasdaq in connection with an IPO with an offering size below $25 million have a higher rate of compliance concerns,” Nasdaq said.

The U.S. Securities and Exchange Commission needs to formally approve Nasdaq’s proposal. Companies already in the IPO process would then have 30 days to complete the process under prior rules, Nasdaq said, while all subsequent listings would have to comply with the changes.

The New York Stock Exchange, which typically only handles larger IPOs, said it “has always had the platinum standard in terms of listing requirements, and we are happy to see others raising their own bar.”

The SEC and China’s Securities Regulatory Commission did not respond to CNBC’s request for comment.