The Nasdaq logo is displayed at the Nasdaq Market site in New York September 2, 2015. REUTERS/Brendan McDermid/File Photo/File Photohas put the brakes on initial public offering preparations of at least four small Chinese companies while it investigates short-lived stock rallies of such firms following their debuts, according to lawyers and bankers who work on such stock launches.
Nasdaq started asking the advisers of small Chinese IPO candidates questions in mid-September. The questions concerned the identity of their existing shareholders, where they reside, how much they are investing and if they were offered interest-free debt so they can participate, according to one of the bankers, Dan McClory, who is head of equity capital markets at Boustead Securities.
Seven sources who work on IPOs of small Chinese companies spoke to Reuters on the condition that neither they nor their clients be identified. These sources said that the ephemeral stock rallies were caused by a few overseas investors who concealed their identities and snapped up most of the shares in the offerings, creating the perception that the debuts were in demand.
Yet these requirements have not been sufficient to prevent trading manipulation in some penny stocks. Small Chinese companies have been attracted to Nasdaq's exchange rather than the New York Stock Exchange because the former has traditionally been the venue of red-hot technology startups - an image these companies often try to project.