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SEC Gives New Disclosure Requirements to Chinese Companies Seeking US Listing

Among the laundry list of items, the SEC is demanding greater disclosure of the variable interest entity (VIE) structure through which most Chinese companies list in the US.

Video source: YouTube, Bloomberg Markets and Finance

The US Securities and Exchange Commission (SEC) has begun issuing new reporting requirements to Chinese companies seeking to list in US markets in order for investors to be better informed of political and regulatory risks.

Citing people familiar with the matter, Reuters reported on Monday that the SEC is asking Chinese companies for details about the offshore vehicles known as variable interest entities (VIEs) that are used to list in the US.

The agency is calling for greater disclosure regarding the financial implications for investors who purchase these VIEs rather than traditional common stock, as well as disclosure about the risk that Chinese authorities may interfere with company operations.

The SEC is also asking Chinese companies about their accounting disclosures because the Chinese government does not let its companies share that work with the US Public Company Accounting Oversight Board (PCAOB).

The move comes a month after SEC chairman Gary Gensler requested a “pause” in IPOs of Chinese companies in the US amid concerns over transparency.

Prior to Gensler’s request, Chinese companies raced to capitalize on the soaring US stock market, raising a record $12.8 billion in gross proceeds the first seven months of 2020.

The SEC’s stepped-up scrutiny is its latest response to Beijing’s continuing crackdown on private industry.

Bloomberg News noted the actions, which include enhanced security reviews of companies looking to list overseas, have prompted a deep selloff of many Chinese stocks trading in the US. 

Earlier this year, the SEC enacted measures aimed at stricter regulation of Chinese and other-foreign operated companies on US stock exchanges. 

The rules — which are part of the Holding Foreign Companies Accountable Act (HFCA) passed last year by Congress — require firms to establish they are not owned or controlled by a foreign governmental entity. 

The Act also bars foreign companies from listing in the US if they fail to comply with PCAOB audits for three consecutive years.


Source: Equities News

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