Nasdaq submits new plan with more power to block IPOs vulnerable to manipulation

Nasdaq filed a new rule Friday that would allow the exchange to block initial public offerings even if companies meet all listing standards if it detects red flags that could make a company’s stock vulnerable to manipulation.The move underlines the push to tighten gatekeepers as companies from opaque jurisdictions look to tap public markets in the US, where a deeper capital pool often gives companies better valuations than they can get elsewhere.

It follows a period of increased scrutiny of market volatility and would give the exchange more room to act when it sees warning signs. If adopted, the rule could raise the bar for transparency for foreign companies. Under the new changes, Nasdaq would have limited discretion to block an initial public offering, after assessing factors such as the company’s headquarters, the availability of remedies for U.S. shareholders in that jurisdiction and the influence of controlling parties.“Nasdaq requires additional authority to exercise discretion in denying a listing based on the possibility that one or more third parties may engage in misconduct affecting a company’s securities,” the exchange operator said in the filing Friday.

The exchange would also vet companies more rigorously if it believes their boards are insufficiently experienced, or if the advisors have questionable histories.

“The Nasdaq rules currently do not permit denying a listing to a company based on assessment of the trading patterns of other companies with similar characteristics or based on considerations related to the company’s advisors, and it requires additional authority to exercise discretion to do so,” Nasdaq said.

PUMP-AND-DUMPA so-called pump-and-dump scheme involves artificially inflating the price of a stock and then selling it at the peak, leaving other investors with steep losses. Nasdaq has spent years trying to curb sharp stock rallies among smaller China-based companies, following a surge in recent years in shares of companies that raised only modest sums in their initial public offerings.

Investors have been hit hard by some of these quotes, with certain Chinese stocks rising as much as 2,000% on their debut before plunging in the days that followed.

In September, Nasdaq introduced stricter listing standards, including a higher minimum public float for some new listings and a faster process to delist barely traded companies, as part of a broader effort to tackle potential market manipulation.