May 19, 2020

News | Business: Nasdaq to tighten rules amid concerns over Chinese firms



A Luckin Coffee store in Beijing Daxing international airport. Image copyright Getty Images
Nasdaq has proposed new rules to make it more difficult for some Chinese firms to list on its stock exchange.
Its proposals would mean companies from certain nations would have to raise at least $25m (£14.4m) or a quarter of their post-listing valuation to list.
Tougher accounting rules will also apply for listings, which are called Initial Public Offerings (IPOs).
The announcement comes as tensions increase between the US and China in the wake of the Luckin Coffee scandal.
The proposed regulations do not single out Chinese businesses but do include additional measures for companies that mainly operate in countries whose laws make it hard for American authorities to conduct investigations.
“The risks to US investors are heightened when a company’s business is principally administered in a jurisdiction that has secrecy laws, blocking statutes, national security laws or other laws or regulations restricting access to information by regulators of US-listed companies in such jurisdiction,” Nasdaq said.
It comes at a time when rising tensions between Beijing and Washington in recent months makes co-operation over financial market regulations far less likely. US-China relations have worsened amid accusations about the coronavirus pandemic.
Last week, Donald Trump moved to block a federal retirement fund from investing in Chinese companies. The US president also said he was looking at Chinese companies that are listed on American stock exchanges but do not follow US accounting rules.
The plans are subject to approval by the US financial watchdog, the Securities and Exchange Commission.

Luckin out

Many US investors are still reeling after revelations of a multi-million dollar scandal at Chinese coffee chain Luckin.
Shares in the company slumped last month after it said that one of its top executives and other employees had faked sales figures.
The company said its own investigation had found that fabricated sales from the second quarter of last year to the fourth quarter amounted to about 2.2bn yuan ($310m; £250m). That equates to about 40% of its estimated annual sales.
The Chinese coffee chain has since sacked its chief executive and chief operating officer, while six other employees who were alleged to have been involved in or known about the transactions have been suspended or put on leave.
The scandal-hit firm said it has been co-operating with regulators in the US and China, who have begun an investigation into the company.
Luckin's Nasdaq listing had been one of China's few successful US stock market debuts of 2019.
The firm's shares were suspended from trade on 7 April. The Nasdaq exchange said the shares would remain halted until Luckin had fully satisfied its request for additional information.

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