NASDAQ Implements New Restrictions On IPOs

The NASDAQ Inc. is implementing new restrictions on initial public offerings (IPOs), a move that will make it harder for some Chinese companies to debut on its stock exchange.

NASDAQ did not mention Chinese companies specifically when announcing the changes. However, the move is being driven largely by concerns about some of the Chinese companies that are planning IPOs on the American stock exchange, as well as a lack of accounting transparency with many of the Chinese concerns.

At a time of escalating tensions between the U.S. and China over trade, technology and the spread of the novel coronavirus, NASDAQ’s new curbs on Chinese IPOs represent yet another flashpoint in the financial relationship between the world’s two biggest economies.

Last month, Luckin Coffee, which had a U.S. IPO in early 2019, announced that an internal investigation had shown its chief operating officer and other employees fabricated sales deals.

The new NASDAQ rules will require companies from some countries, including China, to raise $25 million in their IPO or, alternatively, at least a quarter of their post-listing market capitalization.

This is the first time NASDAQ has put a minimum value on the size of IPOs. The change would have prevented several Chinese companies currently listed on the NASDAQ exchange from going public. Out of 155 Chinese companies that listed on NASDAQ since 2000, 40 grossed IPO proceeds below $25 million, according to data from Refinitiv.

The new rules will also require auditing firms to ensure that their international franchises comply with global standards. NASDAQ will also inspect the auditing of small U.S. firms that audit the accounts of Chinese companies looking to IPO on the Nasdaq exchange.