Nasdaq is to enforce stricter requirements for companies seeking to go public on its exchange. These would affect countries including China.
The New York-based stock exchange will require companies to raise at least $25 million in equity capital in an IPO (initial public offering) or a sum equivalent to a quarter of the value of the group once listed. Nasdaq filed documents to the Securities and Exchange Commission stated.
The rules will apply to listings from countries such as China that have secrecy laws and regulations that do not allow access to information for US regulators.
The exchange has also mandated that companies from these regions hire a special adviser familiar with the levels of transparency and accountability required of US public companies. This applies if they do not have senior management that have worked at US-listed groups.
The changes are said to follow the accounting scandal at Luckin Coffee, the Starbucks rival, one of the biggest Chinese listings on the US stock market in recent years.
In April Luckin Coffee admitted to fabricating $310m worth of sales in 2019 and last week dismissed its chief executive and chief operating officer. Shares in the company, which was one of last year’s biggest IPOs, plunged almost 75 per cent on the day the scandal was revealed.
Close to a quarter of the 59 Chinese IPOs on Nasdaq since the end of 2016 were smaller than $25m, according to data from Dealogic. These accounted for just 2 per cent of the funds raised by Chinese companies on the exchange during the period.
However, these listings have performed poorly, losing on average 67 per cent of value from their IPO price.
Last month, the US Securities and Exchange Commission announced that this summer a meeting will be held to address issues of investing in companies with different levels of transparency.