Nasdaq OMX Looking At Chinese Reverse Merger Stocks

The Nasdaq OMX Group NDAQ has said that it is going to more closely vet reverse-merger companies before listing their shares on the Nasdaq exchange. This decision comes on the heels of SEC and short-sellers' scrutiny of Chinese reverse-merger companies such as China Media Express and Rino International which have been discovered to be largely fraudulent. Reverse mergers have brought around 600 corporations, including more than 150 from greater China, onto U.S. exchanges since January 2007. A reverse merger takes place when a corporation buys a publicly traded shell company as a means of listing on an exchange without going through the costs and rigors of an initial public offering. New rules instituted by Nasdaq to better scrutinize these companies include a six-month waiting period and SEC approval. “Exchanges just kind of ran to it thinking, ‘We want to grab shares, and this is a good area of growth for us,' without really knowing what they were listing,” said Jeff Papp, a senior analyst for the $250 million Oberweis China Opportunities Fund in Lisle, Illinois, which has less than 5 percent of its assets in reverse-merger stocks. “There's a lot of people you can place the blame on -- the exchanges, the SEC, investors -- you name it, everyone got a little ahead of themselves.”