Lackluster post-IPO performances and fraud concerns have turned Nasdaq and the New York Stock Exchange away from Reg A+ IPOs, per a Wall Street Journal report. Nasdaq has proposed that the Securities and Exchange Commission (SEC) stiffen its Reg A+ listing rules, while NYSE has reportedly begun eschewing Reg A+ listings entirely.
This move comes amidst the SEC’s suit against LongFin over organizing an allegedly fraudulent Reg A+ public offering. After the IPO, the company’s shares soared more than 2,500% in response to the news that it had acquired a cryptocurrency business.
To accelerate the IPO process and make it easier for small firms to get financing, Reg A+ listings usually have lower accounting and disclosure standards than conventional offerings, according to the Wall Street Journal. In 2017, exchanges witnessed a string of companies going public under Reg A+, with some trading above their IPO prices while others, such as LongFin, under public scrutiny.
If the SEC approves Nasdaq’s proposal, the exchange will only consider companies that are at least two years old for Reg A+ listing. Meanwhile, although Nasdaq’s new rules would help the exchange better weed out less-established companies, it may also discourage some companies from listing on the exchange, according to the Wall Street Journal.
“We continuously examine our listing standards for all companies,” a Nasdaq spokesman told the Wall Street Journal. “We identified a need to enhance the rules in this area and align with our commitment to investor protection.”
Compared to conventional IPOs, Reg A+ listings open the floodgates for many less-established firms to access a wider investor pool. Data from Manhattan Street Capital shows that Reg A+ companies raised a total of around $1.5 billion in 157 offerings from 2015 to 2018. Only 11 of these companies had their IPOs on Nasdaq or NYSE American, including LongFin.