The SEC targets U.S. companies suspected of being involved in China's "eyewash" stock price manipulation scheme, and Nasdaq plans to tighten listing rules.

The U.S. Securities and Exchange Commission (SEC) is intensifying its scrutiny of American companies suspected of participating in China's "stock price manipulation" schemes, targeting market participants who assist or directly engage in trading manipulation. At the same time, Nasdaq plans to tighten the listing requirements for Chinese small-cap stocks to curb the recent spate of cross-border market manipulation incidents.

SEC Targets Cross-Border Manipulative Trading

According to the Financial Times, the SEC's latest enforcement actions are focused on U.S. companies related to business in China, particularly those that may assist or participate in manipulative trading.

The so-called "stock price manipulation" scam usually involves misleading marketing tactics to drive up stock prices. After insiders cash out at a high price, the stock price plummets, causing ordinary investors to suffer significant losses.

The SEC stated that this move is part of a broader action to combat cross-border market manipulation, aiming to cut off the gray利益鏈 in cross-border capital markets.

Nasdaq Plans to Tighten Listing Standards for Chinese Small Caps

On Wednesday, Nasdaq proposed new rules requiring companies primarily operating in China (including Hong Kong and Macau) to raise at least $25 million in their IPOs.

Other reform measures include:

1. Increase the minimum public offering amount for future listings to $15 million.

2. Accelerate the delisting process for companies that do not meet the listing standards.

These reforms must be approved by the SEC before they can be implemented.

Root of the Problem: Small IPOs and Price Volatility

Since 2020, dozens of Chinese companies have gone public on Nasdaq, raising amounts mostly at or below $15 million.

These stocks often skyrocket shortly after listing, followed by a rapid decline. The Nasdaq review found that "emerging patterns related to potential stock price manipulation schemes" frequently appeared:

1. Salespeople related to major shareholders are selling stocks to new investors.

2. After the stock price is pushed up, insiders concentrate on selling.

3. Retail investors become the biggest victims.

Data Reveals Risk Concentration

Nasdaq stated that since August 2022, nearly 70% of the cases it submitted to the SEC or the Financial Industry Regulatory Authority (FINRA) involved Chinese companies, while such companies account for less than 10% of listed companies on Nasdaq.

This means that the risk is highly concentrated in a few cross-border small-cap stocks.

Geopolitical Background and Market Impact

Since 2019, due to the tensions in Sino-American relations and regulatory pressures, dozens of Chinese companies have delisted from US exchanges.

During the Trump administration, there was a proposal to "decouple" Chinese companies from the U.S. capital markets, marking the end of the era where Chinese firms viewed a New York IPO as the pinnacle of market achievement.

As a hub for global tech giants, Nasdaq also attracts a large number of small speculative companies to go public. Brokers and trading firms criticize its minimum listing standards as being too lenient, providing questionable companies with an opportunity to enter the U.S. capital markets.

Conclusion

The actions of the SEC and the reforms of NASDAQ indicate that U.S. regulators are trying to close the loopholes in cross-border market manipulation. For investors, this means that the listing threshold for Chinese small-cap stocks will be significantly raised in the future, which may suppress the speculative trading frenzy of related stocks in the short term, but will help enhance market transparency and investor protection in the long run.