New York Stock Exchange and Nasdaq Increase Scrutiny on Chinese IPOs
The New York Stock Exchange and the Nasdaq Stock Market are increasing their scrutiny on small to midsized Chinese firms planning to release shares through Initial Public Offerings (IPOs). This move aims to protect investor interests and reduce excessive volatility caused by these IPOs.
Investment bankers, lawyers, and professional services companies have noted that the Nasdaq is focusing on the identity and background of investors before companies plan their IPOs. The screening process is designed to protect investors from excessive share manipulation and volatility.
Authorities have demanded documentation from Chinese entities to ensure that the majority of IPO share buyers are US citizens. Although 80% of IPO buyers for Chinese companies are US citizens, recent concerns have emerged due to pump-and-dump transactions in small to midsize Chinese IPOs, which have brought volatility to the market.
In July 2022, AMTD Digital, a Hong Kong financial services company, was listed on the Nasdaq and saw its stock price skyrocket from an IPO price of USD 7.80 to USD 2,555 within weeks, only to crash later. This event highlighted the need for increased scrutiny.
Geopolitical tensions between the US and China have also contributed to the increased scrutiny. Many Chinese companies are looking to get listed before the US presidential election, as regulations could change with a new president.
As of August 14, 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, with none being rejected so far. Nasdaq has proposed an automatic suspension for companies whose share price stays below USD 1 for a year or falls below the same after a reverse stock split, pending approval by the US Securities and Exchange Commission.
Doubts Revealed
New York Stock Exchange -: The New York Stock Exchange (NYSE) is a place where people buy and sell shares of companies. It’s like a big market for stocks.
Nasdaq -: Nasdaq is another big market for buying and selling shares of companies, but it focuses more on technology companies.
Chinese IPOs -: An IPO, or Initial Public Offering, is when a company sells its shares to the public for the first time. Chinese IPOs are when Chinese companies do this.
Scrutiny -: Scrutiny means looking at something very closely to make sure everything is okay. Here, it means checking Chinese companies carefully before they can sell shares.
Volatility -: Volatility means how much and how quickly the price of something, like a stock, can change. High volatility means the price goes up and down a lot.
AMTD Digital -: AMTD Digital is a company whose stock price went up a lot and then crashed. This made people worry about the safety of investing in such stocks.
Geopolitical tensions -: Geopolitical tensions are problems between countries, like disagreements or conflicts. These can affect how businesses operate internationally.
US elections -: US elections are when people in the United States vote to choose their leaders, like the President. These elections can influence many decisions, including business regulations.
USD 642 million -: USD 642 million means 642 million US dollars. It’s a way to show how much money the listed Chinese firms are worth.
