The move underscores pressure to tighten gatekeeping as companies in opaque jurisdictions look to tap public markets in the US, where a deep pool of capital often gives companies better valuations than they can get elsewhere.
It follows a period of heightened scrutiny of market volatility and will give exchanges more room to act when they see warning signs. If adopted, this rule could raise barriers to transparency for foreign companies. Under the new changes, Nasdaq will have limited discretion to block an IPO after reviewing factors such as the company’s headquarters, the availability of legal remedies to US shareholders in that jurisdiction and the influence of controlled parties.
“Nasdaq needs additional authority to exercise discretion to reject a listing based on the potential for one or more third parties to engage in misconduct affecting a company’s securities,” the exchange operator said in a Friday filing.
The exchange will scrutinize companies more closely if it believes their boards lack sufficient experience, or if advisers have questionable histories.
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“Nasdaq’s rules do not currently allow it to refuse to list a company based on a review of the trading patterns of other companies with similar characteristics or on considerations related to the company’s advisers, and it needs additional authority to exercise discretion to do so,” Nasdaq said.
Pump-and-dump
A so-called pump-and-dump scheme involves artificially inflating the price of a stock and then selling it at the peak, causing huge losses to other investors. Nasdaq has been under years-long scrutiny to prevent a sharp rally in shares of smaller China-based companies, after the shares of companies that raised only modest sums in their IPOs soared in recent years.
Investors have been hit hard by some of these listings, with some Chinese stocks jumping as much as 2,000% on their debut before plunging in the following days.
In September, Nasdaq introduced stricter listing standards, including a higher minimum public float for some new listings and a faster process to delist thinly traded companies, as part of a broader effort to curb potential market manipulation.
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