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AsianFin -- The Nasdaq Stock Market is moving to tighten its listing requirements in a move that would significantly restrict small Chinese companies from going public in the U.S., a shift that comes amid heightened scrutiny of microcap offerings and growing friction between Washington and Beijing.

In a statement late Wednesday local time, Nasdaq said it plans to require companies that primarily operate in China to raise at least $25 million in their initial public offerings in order to qualify for listing. The proposed change is subject to approval by the U.S. Securities and Exchange Commission (SEC).

If adopted, the measure would mark one of the most consequential efforts by a major U.S. exchange to address the wave of tiny Chinese IPOs that have hit New York in recent years. The exchange cited investor protection concerns, warning that such offerings often present heightened risks and potential for market manipulation.

A clampdown on “ramp and dump” microcaps

“It will be more difficult for small Chinese companies to go IPO [on the] Nasdaq under the new rule,” said Winston Ma, adjunct professor at NYU School of Law. “The new rule reacts to some IPO cases of ‘pump and dump’ due to small float size.”

Microcaps — typically companies with market capitalizations between $50 million and $300 million — have been at the center of regulators’ concerns. Many such IPOs raise only a few million dollars, but their thin trading volumes can make them especially vulnerable to sharp price spikes or collapses.

In 2024, 35 small China-based firms listed in New York, nearly double the 17 U.S.-based microcap listings, according to data from Renaissance Capital. This surge has stood in stark contrast to the drought of large Chinese IPOs, following the fallout from ride-hailing company Didi’s troubled 2021 debut, which triggered Beijing’s regulatory crackdown on overseas listings.

Nasdaq pointed out that small Chinese IPOs have “a higher rate of compliance concerns” and stressed that U.S. authorities often lack the legal tools to pursue entities and individuals involved in manipulative trading tied to these companies.

The exchange also said that firms already in the IPO pipeline would be given a 30-day grace period to complete their offerings under the old rules. All future applicants, however, would be bound by the new requirements once approved.

The proposal has drawn support from some investor relations professionals and market participants who say it will help restore confidence in smaller listings.

“This is a positive,” said Gary Dvorchak, managing director at Blueshirt Group, which advises Chinese companies on IPOs. “I think it’s going to instill more confidence that the companies listing are doing it for legitimate reasons and there’s less likely to be games being played with the stock. It really protects the companies as well.”

The New York Stock Exchange, which generally handles larger-cap IPOs, welcomed the move. “We have always had the platinum standard in terms of listing requirements, and we are happy to see others raising their own bar,” the NYSE said in a statement.

A new front in U.S.-China economic rivalry

The Nasdaq’s policy shift arrives against a tense geopolitical backdrop. Just hours before Nasdaq’s announcement, Beijing unveiled new punitive tariffs on certain U.S. optical fiber products, escalating trade frictions.

China’s Ministry of Commerce said its investigation found some U.S. producers had circumvented anti-dumping duties by slightly modifying their products. As a result, New York–headquartered Corning now faces a 37.9% tariff on some optical fiber exports to China, while OFS Fitel and Draka Communications Americas face duties of 33.3% and 78.2%, respectively.

Corning, which derives 32% of its sales revenue from China, said in an emailed statement that it “has not, nor will it ever, dump products in China nor seek to circumvent these measures.” The company added it does not expect a material business impact, given that “very small amounts of fiber” are imported into China that fall under the expanded duties.

Still, analysts warn that Beijing’s response is a signal of broader pushback. “China is saying: we are prepared to fight fire with fire,” said Stephen Olson, senior fellow at the ISEAS-Yusof Ishak Institute. “The trade truce is just a temporary band-aid. It could collapse at any time.”

The tariff move also followed Washington’s recent decision to revoke Taiwan Semiconductor Manufacturing Co.’sauthorization to ship advanced chipmaking tools to its China plant — another sign of tightening restrictions on Beijing’s tech ambitions.

“China’s optical fiber tariff signals displeasure with U.S. moves to restrict access to advanced chips and the undersea cable supply chain,” said Alfredo Montufar-Helu, managing director at GreenPoint advisory firm. “But the tariff is also targeted and restrained enough to avoid shattering months of trade negotiations.”

Regulatory scrutiny years in the making

Nasdaq’s proposed listing rule caps years of growing regulatory scrutiny over small-cap Chinese offerings.

Back in May 2021, Hong Kong’s stock exchange and China’s securities regulator flagged concerns that underwriters of IPOs below $600 million were collecting unusually high commissions — averaging 12%, more than triple levels seen just four years earlier.

Then in November 2022, the Financial Industry Regulatory Authority (FINRA) in the U.S. issued a warning about “significant unusual price increases” following certain small-cap IPOs, most of which involved issuers based overseas. The alert specifically cited China, raising alarms about possible manipulation in U.S. broker-dealer accounts.

More recently, FINRA has said that so-called “ramp and dump” schemes have evolved. Instead of spiking prices only in the first days of trading, manipulative activity now often unfolds weeks or even months after the IPO, said Peter Gonzalez of FINRA’s special investigations unit in a November 2024 podcast.

Balancing capital markets and geopolitics

For Nasdaq, the new rule represents both a risk-control measure and a statement about the exchange’s role in protecting investors. But it also underscores the complex intersection of capital markets and geopolitics.

While Beijing has tried to encourage domestic fundraising and restrict capital outflows, Chinese entrepreneurs have long viewed U.S. listings as a prestige marker and a gateway to global capital. In recent years, China has required firms to obtain regulator approval before overseas IPOs, especially those with large domestic user bases.

For Washington, meanwhile, microcap listings have become another flashpoint in a broader debate about financial security, transparency, and systemic risk tied to China.

“The exchange of fire [between the U.S. and China] will continue in many ways,” said Tianchen Xu, senior economist at the Economist Intelligence Unit, adding that rising frictions could complicate prospects for a planned presidential meeting between the two countries.

With Nasdaq’s proposal now awaiting SEC approval, both investors and Chinese firms will be watching closely to see how the landscape shifts. If enacted, the rule could significantly slow the pipeline of small Chinese IPOs that have become a fixture of the U.S. market — and add yet another layer to the already fraught U.S.-China financial relationship.