NYSE, Nasdaq increase scrutiny of Chinese firms amid volatility concerns

The New York Stock Exchange and the Nasdaq Stock Market have increased scrutiny on small to midsized Chinese firms preparing to release the shares of Initial Public Offering (IPO), in a move aimed to protect investor interest and excessive volatility caused by these IPOs, Nikkei Asia reported.

Investment bankers, lawyers and professional services companies on the matter said that the Nasdaq had been focusing on the identity and background of investors before the companies planned for IPO.

The screening of Chinese companies is to protect investors from excessive share manipulation and volatility, Nikki Asia reported citing sources. The authorities have demanded the Chinese entity's documentation of the buyers of these IPO shares to ensure that the majority of them are US citizens, the Nikkei Asia report mentioned quoting a local lawyer.

Another lawyer pointed out that 80 per cent of IPO buyers for Chinese companies were US citizens but, the recent concerns have emerged from the pump-and-dump transactions in small to midsize Chinese IPOs have brought volatility to the market, industry players say.

According to the report, in July 2022, AMTD Digital, a Hong Kong financial services company, was listed on the Nasdaq and witnessed its stock price skyrocket. The price of the share jumped from an IPO price of a mere USD 7.80 to USD 2,555 within weeks. Such events gave the Hong Kong company a larger market value than Chinese e-commerce giant Alibaba at one point. However, the stock price crashed in the upcoming weeks.

One investment banker said that the geopolitical tensions between the US and China have pushed scrutiny from Nasdaq.

"Many Chinese companies are looking to get listed before the US presidential election, because who knows how regulations could change with a new president," he said.

The Nikkei Aisa report further cited financial analytics firm Dealogic and stated that as of August 14 this year, as many as 13 Chinese firms valued at USD 642 million were listed on the Nasdaq and the New York Stock Exchange. A total of 44 Chinese companies have filed to list on the Nasdaq this year. But, none have been rejected so far.

Nasdaq had proposed an automatic suspension for companies whose share price stays below USD 1 for a year or falls below the same after completing a reverse stock split, however, the changes are subject to approval by the US Securities and Exchange Commission.