Loopholes From Here to China

U.S. exchanges diverge slightly in specific reporting requirements. According to the Nasdaq's listing standards and fees guide, updated in July, companies are required to meet standards related to pre-tax earnings, cash flows, market capitalization, revenue, bid price, number of market makers and, in some cases, total assets and stockholders' equity.

The NYSE Amex requires information about pre-tax income, market cap, minimum bid price, operating history, shareholders' equity and the market value of the public float. The exchange says that foreign issuer applicants may qualify for listing with 800 round-lot public shareholders worldwide, 1 million publicly held shares worldwide and a $3 million market value of public float worldwide.

The flip side to these criteria is that both the Nasdaq and the NYSE are eager to attract new listings and uplistings from smaller markets, as new listings mean new revenue for them. The result has been a battle between the major exchanges. Both exchanges announced in 2007 that they were setting up beachheads in China, to gain better access to potential applicants.

Of late, both exchanges have made it easier for companies to get listed. The Nasdaq lowered its share price threshold to $4 from $5 in April 2009, after the global economic crisis depressed the prices of many stocks. Subsequently, the Amex cut its share price requirement to $2 from $3.

The Nasdaq is leading in the competition for listings so far, with a total of 159 China-based companies now listed on its exchanges, including major names like Baidu.com (BIDU) as well as reverse-merger stocks like China Natural Gas (CHNG) and RINO International. The NYSE Euronext's exchanges say they have 92 companies listed from greater China, including a good many RTO stocks such as Orient Paper and China Green Agriculture (CGA).

The two major exchanges say that the existing listing requirements are applied uniformly, without exceptions. There are no special provisions for RTO companies, they say. A Nasdaq OMX regulatory official added that the exchange would give serious consideration to any suggestion of fraud. "If a short seller raised issues that we thought were credible and affected the company's listing status, we would look at them," the official added.

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