Nasdaq Wants Authority To Block Certain Types Of IPOs – What Are The Key Factors In Play?

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The proposals aim to reduce extreme volatility and potential market manipulation tied to small-cap IPOs.

  • Company location and legal protections for U.S. investors are among the factors Nasdaq will consider before approving the IPO
  • Nasdaq said the changes aim to bring more transparency to how it screens applicants that resemble past cases involving sharp, unexplained trading swings.
  • The proposal is seen as a step to tighten oversight as more foreign companies seek access to U.S. capital markets.

In a bid to curb highly volatile small-cap initial public offerings (IPOs), Nasdaq Inc. (NDAQ) has proposed rule changes that would allow the exchange to reject IPOs even when companies meet all formal listing requirements.

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In a filing with the SEC on Friday, Nasdaq said it wants the authority to reject listings if it identifies red flags that could leave a stock vulnerable to manipulation.

The proposals aim to reduce extreme volatility and potential market manipulation tied to small-cap IPOs, many of which originate from Asia. The latest proposal is seen as a step to tighten oversight as more foreign companies seek access to U.S. capital markets.

What Does Nasdaq Plan To Evaluate?

Nasdaq’s proposed rule outlines several factors it may consider when blocking a listing, including the company’s location, legal protections for U.S. investors, the influence of key shareholders, advisor history, the expected public float, and any past regulatory concerns. 

It will also assess management’s familiarity with U.S. reporting requirements, prior volatile trading linked to advisors, going-concern warnings, and broader issues that could call into question the integrity of the company or its leadership.

Nasdaq said the changes are meant to increase transparency into how it evaluates applicants with characteristics similar to those in past cases that triggered sharp, unexplained trading swings.

Prior Scrutiny

The move comes after years of scrutiny over dramatic rallies and crashes in lightly traded foreign IPOs, some of which surged more than 2,000% on debut before collapsing. Regulators have warned that such patterns resemble pump-and-dump schemes, where manipulators inflate stock prices before dumping shares on unsuspecting investors.

Meanwhile, U.S. equities were down in Friday’s early trade. At the time of writing, the SPDR S&P 500 ETF (SPY), which tracks the S&P 500 index, was down 0.2%%, while the Invesco QQQ Trust ETF (QQQ) declined 0.6%.

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