On December 3rd, 2020, the US Securities and Exchange Commission (SEC) announced that it had added to its list of companies to be delisted over 80 Chinese firms including JD.com, NetEase, and NIO. The list also included five trading services.
This announcement comes amid a growing sentiment that China does not adhere to certain financial regulations as required of all companies listed on US exchanges. This article will examine the reasons behind the SEC’s decision and analyze its implications for international financial markets going forward.
Background
Last week, the US Securities and Exchange Commission (SEC) announced that it was delisting over 80 Chinese companies from American stock exchanges, including JD.com, NetEase, and NIO.
The delisting follows the enactment of a new law passed by the Trump administration in December 2020 that requires Chinese companies to meet certain auditing and disclosure standards to remain listed on US exchanges.
By delisting these Chinese companies, the SEC seeks to prevent investors from unknowingly investing in companies that do not adhere to US disclosure and audit standards.
SEC adds over 80 Chinese firms, including JD.com, NetEase, and NIO, to list of companies to be booted from Wall Street
On January 5th 2021, the U.S. Securities and Exchange Commission (SEC) announced it will delist companies from certain countries worldwide, including Chinese companies. This decision came in response to concerns over inadequate or nonexistent independent public audit oversight in certain foreign nations.
Specifically, the SEC will begin delisting around 80 Chinese-based firms from US Stock Exchanges by mid-2021, including JD.com, NetEase, and NIO Inc., along with other non-Chinese firms like ABS Corporation Ltd., Aurobindo Pharma Ltd., Bharti Airtel Ltd., ICICI Bank Ltd., and Tata Motors Ltd. This decision impacts 297 companies listed on US exchanges across multiple industries and countries of origin including China, Hong Kong, India and other nations.
The action leads to the support of strong investor protections provided by having accurate financial information that is properly audited by independent registered public accounting firms subject to governmental oversight regarding audit standards and issuer disclosure requirements— both of which are not available when audits are conducted by accounting firms affiliated with Chinse government agencies like National Financial Reporting Authority (NFRA) or China’s Ministry of Finance
The SEC acknowledges that some of these companies have made efforts over the years to provide critical audit evidence resulting from their work with U.S.-registered public accounting firms associated with affiliate members of NFRA or Chinese Public Accounting Firms supervised by CPA’s that adhere to PCAOB standards for foreign public company audits. But, unfortunately, none of these efforts qualify as acceptable auditing oversight under SEC guidance for compliance with Sections 13(a) and 15(d) which require access to documents obtained directly from personnel within foreign government organizations.
The immediate implication is delisting from U.S exchanges during 2021 beginning midyear— meaning investors can no longer buy shares in affected companies through USfinancial markets while they seek alternative venues they might be listed on such as the Hong Kong Stock exchangeor local markets based in China itself where investors can still buy shares althoughsubject to limitations consistent with a foreign jurisdiction’s laws governing such transactions.
Reasons for the delisting
On the 22nd of January 2021, the U.S Securities and Exchange Commission (SEC) announced its decision to delist certain Chinese stocks from Wall Street exchanges due to concerns about audit transparency and compliance with securities laws. More than 80 Chinese companies were added to the list to be removed from the market. This includes major firms such as JD.com, NetEase, NIO, Huazhu Group, etc.
The move reflects growing concerns by investors and regulators worldwide about inconsistent standards in reporting financial data and potential risks with investing in Chinese companies. The SEC’s decision mainly affects Chinese-based companies that do not have an appropriate way for U.S investors to insure their investments credible or that are suspected of fraud or financial misconduct; this is partially due to China’s strict regulation on corporate disclosure rules which can make it difficult for independent auditors to access necessary documents or information when conducting audits on these firms. There are also worries over China’s lack of reciprocal regulations which may impede foreign investigations conducted within their jurisdiction should fraudulence be suspected by major investors such as those in America.
Overall, the delisting is part of a wider effort by international regulators to protect investors from potential losses due to fraudulent practices and provide adequate information for individuals who choose to invest in international markets outside their own countries. It does not reflect a general hostility towards foreign investment, but rather a commitment toward fairer compliance rules for all parties involved in global trading activities.
Impact
The decision by the Securities and Exchange Commission (SEC) to delist over 80 Chinese firms from the U.S. exchanges is a move that will have a lasting impact on not only the firms involved, but also the Chinese economy, U.S.-China relations, and the global financial markets.
This step will likely have numerous economic, political and social implications for all parties involved, so let us take a closer look at the potential impacts.
Impact on the U.S. stock market
The recent decision by the Securities and Exchange Commission (SEC) to delist over 80 Chinese companies, including those listed on the New York Stock Exchange (NYSE), is likely to significantly impact the U.S. stock market. By delisting the companies, their shares will be removed from the trading books of major exchanges. In addition, their related derivatives will also become difficult to trade as market makers could be barred from engaging in position-taking trades involving delisted securities. This could also reduce overall liquidity in some markets, affecting peak volumes.
Moreover, investors may have difficulty finding a ready buyer for their stock should they wish to exit certain positions in the listed companies during this turbulent period of uncertainty caused by escalating tensions between the United States and China. With lower liquidity for such stocks, it could become harder for investors to obtain good prices for their investments — resulting in further decline of such shares already suffering from increased geopolitical risk premia arising from U.S.-China trade war issues that recently arose over national security concerns.
Furthermore, while individual investors without specialized knowledge might find it hard to identify safe investments among these Chinese firms if they still decide to invest in them post SEC’s move; larger institutional investors may benefit since there will more than likely be an arbitrage opportunity created due to varying liquidity levels among different venues. Finally, it is worth noting that before investing any amounts into such stocks after the delisting event happens, two should understand potential risks related both directly due to SEC’s intervention and indirectly due to increased geopolitical risks associated with U.S.-China relations developments.
Impact on the Chinese firms
The US Securities and Exchange Commission (SEC) has announced that it will delist more than 80 Chinese firms, including JD.com, NetEase and NIO, from the U.S. stock exchanges. This move comes in response to China’s restrictive new rules on foreign companies listing in the country and to increase transparency and investor protection in emerging markets.
This announcement will majorly impact the listed Chinese companies and their investors. First of all, they will face immediate delisting from US stock exchanges. That means they’ll have to find another place to list their securities or move their business away from Wall Street altogether.
In addition, these companies may suffer financial losses due to decreased investment interest by US investors, who would no longer be able to easily access their stocks trading on the NYSE or Nasdaq. Additionally, being delisted from US stock exchanges may have long-term negative implications for a company’s brand image and market presence in the United States; this could cause damage to its prospects for further international expansion, as well as potentially hinder business growth opportunities elsewhere in the world which are dependent on high levels of market visibility among global investors.
Conclusion
The SEC’s decision to delist 80 Chinese firms from Wall Street, including JD.com, NetEase, and NIO, is a monumental move which will have long-term implications for these companies and the financial markets in the United States.
The moves have significant implications for US investors’ trust in Chinese companies, the US-China relations, and the overall US capital markets. In the following, we will discuss the implications of this decision and its potential impact on the financial markets.
Summary of the SEC’s decision
Earlier this month, the U.S. Securities and Exchange Commission (SEC) announced that it would delist over 80 Chinese firms from the American financial markets. This decision has been met with a lot of controversy and criticism, as it could have a huge impact on both the Chinese companies in question and Wall Street investors.
The SEC’s move was based on a growing concern that these firms’ financial reports may not provide an accurate picture of their business operations, due to inadequate audit oversight by the Chinese government. As a result, the SEC is now requiring these firms to restructure their corporate governance practices to fully comply with U.S. securities laws and regulations within one year or face suspension from domestic stock exchanges.
These Chinese companies affected by the SEC’s delisting order include popular tech stocks like JD.Com (JD), NetEase (NTES), NIO Inc (NIO), Weibo Corp (WB), Baidu Inc (BIDU) and Pinduoduo Inc (PDD). As a result, unlisted shares of those firms are now fully banned from trading in U.S.-based broker dealers, mutual funds or pension funds, except for those allowed under certain exemptions granted by the Commission such as ETFs investing solely in eligible assets listed on non-U.S.-exchanges and issuers subject to special treatment under American foreign personal property law and regulation S as granted by exempted orders issued under Rule 901 and 902 respectively of Regulation S of The Securities Act of 1933 as amended on December 16th 2020 respectively.
The goal of the SEC’s decision is to protect US investors while providing complete transparency into company operations including financial reporting and auditing standards across all firms listed on Wall Street – allowing for equal treatment based on legality regardless of origin or nationality, regardless if it be China’s or any other foreign country listed for potential listing revocations per investigations conducted by authorities respectively acting upon preserving investor interests foremost any given Tuesday required legally fitting parameters respectively adjudging same under circumstances rising substantially similar thereto pertaining hereunto today accordingly forthwith thereby whereby God willing this be acceptable provided good faith safety net best practices suffice each occasion moving forward according Justice Department public policy guidelines overall across sectors relating statutorily modalities thereunder currently relevant within changing times America faces today herewith justice shall prevail long term thankfully!
Implications for the future
The Securities and Exchange Commission’s (SEC) decision to delist over 80 Chinese companies, including JD.com, NetEase and NIO, has significant implications for the future of the U.S. stock market and the global tech sector. The decision removes these once-prominent Chinese companies from American exchanges. It will significantly restrict their access to the U.S. capital markets, likely resulting in a further decrease in overall share prices of these firms’ stocks.
The SEC’s decision will likely start a ripple effect forward as companies review their listings across other financial exchanges internationally and take steps to ensure that all listed securities meet regulatory requirements for trading on U.S. stock exchanges; for example, an individual company may need to restructure its corporate structure or update its reporting statements to remain compliant with SEC requirements incorporated into other countries’ regulations –– otherwise such stocks could face delisting from those exchanges as well due to noncompliance with their requirements.
Due to this ripple effect, the SEC’s decision may cause some large international firms that are listed on multiple regulated exchanges worldwide, such as Apple Inc., Tesla Inc., Microsoft Corp., Google LLC, Amazon Inc., Alibaba Group Holding Ltd., Tencent Holdings Ltd., Softbank Group Corp., etc., or Unicorns such as Palantir Technologies Inc., Uber Technologies Inc,, etc, who rely upon access to the U.S capital markets for growth funding, to pause before engaging in any severe restructuring or governance changes not already approved by each national exchange regulator or issuer counsel prior so as not to invite any undue attention of a potential delisting by such regulators in their respective countries.
Furthermore, investors should expect a more stringent regulatory environment from all parties involved. Likely, both issuers of securities traded on United States Stock Exchanges, such as domestic corporations and foreign companies including those based in China will have specific extra disclosures requirements imposed upon them should they wish continue trading privileges on US equity markets going forward.
