While Beijing has recently cracked down on Chinese companies looking to make their debut overseas, it appears that regulators in the US have decided to employ similar measures, too.
According to Reuters, which cited a SEC document as well as people familiar with the matter, US regulators have begun delivering more stringent disclosure requirements to Chinese companies looking to list on US exchanges. Last month, SEC Chair Gary Gensler announced that applications for US IPOs of Chinese companies will be temporarily suspended, while the regulator explores more stringent transparency rules.
Following the SEC’s temporary suspension, Chinese listings on US stock exchanges were sent plummeting, after reaching a record $12.8 billion in the first seven months of the year. Now, according to the new detailed instructions, Chinese companies will be required to disclose information regarding their use of variable interest entities (VIEs), as well as disclose any potential risk that may stem from Chinese authorities interrupting company operations.
“Please describe how this type of corporate structure may affect investors and the value of their investment, including how and why the contractual arrangements may be less effective than direct ownership, and that the company may incur substantial costs to enforce the terms of the arrangements,” read one of the SEC’s letters seen by Reuters.
The SEC has also requested Chinese companies to disclose to investors any forthcoming risks that may arise in the event that Chinese regulators interfere with the company’s data security policies. In addition, the US regulator has also demanded further details on cases where the company in question fails to comply with the U.S. Holding Foreign Companies Accountable Act regarding accounting disclosures.
Information for this briefing was found via Reuters. The author has no securities or affiliations related to this organization. Not a recommendation to buy or sell. Always do additional research and consult a professional before purchasing a security. The author holds no licenses.