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Nasdaq Listing Rules are designed to ensure that securities listed on the exchange attract sufficient market attention, develop an adequate public float, and achieve the necessary trading interest to promote fair and orderly trading. This framework aims to maintain liquidity and depth in the market, contributing to a stable trading environment for listed companies.
A recent trend observed on U.S. exchanges has been unusually high price spikes immediately following the pricing of certain Initial Public Offerings (IPOs). For instance, companies like Rivian Automotive, Inc. (RIVN) and Roblox Corporation (RBLX) have experienced significant price movements shortly after their IPOs. These extreme price fluctuations are often followed by a decline, with the share price sometimes falling to or below the offering price. Such phenomena may be linked to factors such as insufficient liquidity or limited supply in the opening trade or in continuous trading shortly after the listing.
To address these concerns and ensure that the objectives of Nasdaq’s Listing Rules are met, Nasdaq may request additional information regarding the allocation of shares in an IPO. This additional scrutiny helps to confirm that the underlying goals of fair and orderly trading are satisfied.
Expected Allocation List
Nasdaq may, on a case-by-case basis, require companies and their underwriters to provide an expected allocation list. This list includes details about the names and locations of investors anticipated to receive shares in the allocation. For example, if a company like Snowflake Inc. (SNOW) is preparing for its IPO, Nasdaq might request this information to assess how shares are distributed among various investors. The exchange may also seek to understand whether there are any formal or informal policies that could restrict the availability of allocated shares for trading on the first day of trading.
Representation Against Financial Schemes
Nasdaq may request a representation from the company affirming that neither the company nor its affiliates are involved in any schemes or arrangements where shareholders or potential shareholders are provided with funds to purchase shares in the IPO. Furthermore, the company must confirm that it is not aware of any such arrangements, even if it is not directly involved. This measure aims to prevent any practices that could distort the market or undermine the fairness of the IPO process.
Final Allocation Information
In instances where Nasdaq has requested information about expected allocations, the exchange will also require details about the final allocation of shares. Companies are expected to provide account-level information about the recipients of shares within two business days following their listing. For example, if a company like Affirm Holdings, Inc. (AFRM) completes its IPO, Nasdaq will seek comprehensive details about the final distribution of shares to ensure compliance with listing rules.
Considerations in the Review Process
When reviewing the information provided by a company, Nasdaq will consider several factors. These include the concentration of shareholding in the IPO, any restrictions on the shares on the first day of trading, and the geographic location of the accounts involved. Nasdaq will also evaluate any regulatory concerns related to the underwriters, syndicates, or selling group members, including their past representations to Nasdaq.
For example, if a company like DoorDash, Inc. (DASH) is undergoing an IPO, Nasdaq will scrutinize the allocation details to ensure that the distribution supports a balanced and fair trading environment. This includes assessing whether the shares allocated are subject to any trading restrictions and evaluating any concerns regarding the entities involved in the IPO process.
In summary, Nasdaq’s regulatory framework requires detailed information about the allocation of shares in an IPO to uphold the principles of fair and orderly trading. By requesting expected and final allocation lists, and verifying the absence of financial schemes that could impact market integrity, Nasdaq aims to maintain a stable and transparent market environment for all listed securities. This approach helps ensure that IPOs contribute positively to market liquidity and trading depth, ultimately benefiting both investors and companies alike.
