By Bill Alpert and Nate Wolf
The Nasdaq stock exchange wants more discretion to refuse an initial public offering, after allowing hundreds of small IPOs that crashed in the months after their debuts to go ahead. Regulators halted a dozen new Nasdaq stocks in recent months on suspicions of manipulation.
A proposal issued Friday would give the exchange wider discretion to deny an initial listing to stocks susceptible to manipulation because their business hails from a jurisdiction like China that won't cooperate with U.S. regulators; because its underwriters, brokers, lawyers, or auditors have histories with problematic deals; or because of concerns about the integrity of management or significant shareholders. The U.S. Securities and Exchange Commission will have to review and approve the proposed rule.
At a time when IPOs are scarce, Nasdaq has enjoyed one of the world's most packed initial-offering calendars. A Barron's article last week detailed, however, that half of the exchange's IPOs last year were illiquid offerings of less than $15 million, mostly from businesses in China. The majority fell more than 35% in a year when the Nasdaq Composite gained 30%.
This year, the problem got worse. While the exchange tightened its listing rules in April, to require at least $15 million for most IPOs, it left a loophole that applicants quickly exploited to make offerings below that level. Through last month, Nasdaq's number of sub-$15 million deals had already exceeded all of 2024 by 20%. More than half had fallen almost 60%.
The SEC and the brokerage industry self-regulatory body Finra launched investigations of China-based offerings and their underwriters in recent months. This summer, the Federal Bureau of Investigation reported a 300% increase in complaints about pump-and-dump frauds.
Nasdaq has said it has limited power to deny listings to companies that meet its requirements for the size of their business and shareholdings. In September, it proposed closing the loophole that had allowed more than 90 IPOs below the $15 million since April, and proposed a $25 million minimum for companies based in China.
Nasdaq still awaits the SEC's approval of its September revisions, even as the exchange proposed new changes on Friday.
Nasdaq -- and to a lesser extent the small-company tier of the New York Stock Exchange known as NYSE Amex -- have been venues for trading in small stocks that would be subject to sales restrictions against penny stocks under a federal law adopted in the 1990s. Stocks listed on an exchange are exempt from the penny-stock rules, and Barron's has reported on how Nasdaq has let companies repeatedly use reverse stock splits to keep their share prices above the minimum levels required for continued listing.
The tougher listing rules in Nasdaq's Friday proposal would give the exchange review powers over a company's outside advisors that would be similar to a pre-listing review process in force at the NYSE. The NYSE has listed far fewer tiny IPOs than Nasdaq.
In filings with the SEC, the Wall Street trade association Sifma has repeatedly criticized Nasdaq for overhauling its listing standards too slowly, while warning that investors assume that a stock listed by the exchange must be a safe investment.
The focus by Nasdaq, the SEC, and Finra on underwriters with histories of troublesome IPOs reflects the frequent appearance of certain small investment banks in problematic offerings. No specific underwriters have been named by those regulators, nor have any allegations of wrongdoing resulted from the inquiries the SEC and Finra began in the fall.
Among the most frequent underwriters of Nasdaq's tiny IPOs this year is Dominari Holdings, which is 12% owned by President Donald Trump's two older sons, according to October proxy filings.
Dominari and Donald Trump Jr. haven't responded to requests for comment when previously queried by Barron's, while Eric Trump has declined to comment through a representative. None of the three could immediately be reached for comment on Friday morning.
The White House referred inquires to the Trump Organization. When the White House has been asked by Barron's about the president's sons' Wall Street interests in the past, it has supplied this quote from spokesperson Karoline Leavitt:
"The media's continued attempts to fabricate conflicts of interest are irresponsible and reinforce the public's distrust in what they read. The President has never engaged, and will never engage, in conflicts of interest."
Write to Bill Alpert at william.alpert@barrons.com and Nate Wolf at nate.wolf@barrons.com
This content was created by Barron's, which is operated by Dow Jones & Co. Barron's is published independently from Dow Jones Newswires and The Wall Street Journal.
(END) Dow Jones Newswires
December 12, 2025 09:57 ET (14:57 GMT)
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