According to Bloomberg, the US administration is one step away from excluding several Chinese companies from the country’s stock indices for failing to comply with regulatory requirements regarding the transparency duty.
The North American Markets Regulatory Authority (the Securities and Exchange Commission or SEC) announced that it is in the final stages of a process “that aims to bring into force a new rule requiring foreign companies to disclose multiple information about their activities, under pain of exclusion from stock indices “.
Until now, opacity has been a common problem. Washington has difficulty accessing information from companies based in China and Hong Kong because Beijing does not permit what it classifies as “foreign inspections.” “If companies want to participate in the North American market, they must be scrutinized by the Public Board of Companies,” Securities and Exchange Commission president Gary Gensler said in a statement released this week.
“Although more than 50 jurisdictions allow the necessary checks, there are two that still restrict this activity: China and Hong Kong,” Gary Gensler criticizes.
It’s the end of a swift procedure that began during the Trump administration in December 2020, when Congress demanded that the SEC draw up a rule to punish anyone who “does not comply with regulatory oversight.”
In recent months, the war between Washington and Chinese companies has escalated. In August, the SEC put forward a series of requirements for Chinese companies that wanted to debut on the US stock exchange. With the move, Gensler took a further step towards regulating Beijing-based listed companies after warning of the dangers that investors could face if they did so.
According to Reuters, some Chinese companies have begun to receive detailed instructions from the SEC on IPOs of so-called “variable interest companies,” companies in which the investor has a controlling stake despite not owning the majority of voting rights.
“Describe how this type of corporate structure might affect investors and the value of their investments, including how and why contractual relationships may be less effective than outright ownership,” the SEC said in a letter quoted by Reuters.
The US market regulator has warned of investments in Chinese companies whose shares are listed on Wall Street via an explanatory video that was broadcast on SEC social media. Gensler said most American investors do not know what is behind some of the Chinese companies that are listed on US exchanges, and the vast majority of these companies still do not disclose all the necessary data about their activities.
Gensler’s comments came after the regulator ordered the suspension of all US IPOs (initial public offerings) until the companies provide investors with additional information about their activities.
