The risk of delisting of micro-cap stocks increases. Nasdaq’s new regulations will sweep away the hardest-hit areas of “pump and dump” fraud
As regulators focus on market volatility and manipulation plaguing micro-cap stocks, Rules will be changed to make it easier to weed out poorly run businesses. Under the plan approved by the U.S. Securities and Exchange Commission (SEC) on Wednesday, a Nasdaq-listed company that has a market value of less than $5 million for 30 consecutive days will face an immediate suspension and delisting, with limited opportunities to appeal. The tougher standards are expected to hit the microcap and penny stock sectors across the board - a fraud hotspot where regulators have warned about high-tech pump-and-dump stock scams. In a "pump and dump" scam, the manipulator buys a company's stock and then tries to trick other investors into buying it at increasingly higher prices, sometimes using high-pressure tactics through online forums and chat rooms. They then sell their holdings in a concentrated manner, causing stock prices to plummet and resulting in heavy losses for investors who fall into the trap. In its order, the SEC said cheap stocks with low market capitalizations are more susceptible to manipulation or wild swings because fraudsters only need small amounts of money to affect stock prices. Data shows that there are currently nearly 180 Nasdaq-listed companies with a market value of less than $5 million. The data also shows that about a third of these companies are based in Asia. Bloomberg’s previous analysis pointed out that some of these stocks showed characteristics of becoming the targets of suspected pump and dump on social media. The SEC estimates that hundreds of microcap stocks will fail to meet the new continued listing standards in the future. The SEC said in 2023 that 140 Nasdaq-listed companies had a market value of less than $5 million for 30 consecutive days.