SEC gives Chinese companies new requirements for US IPO disclosures

Early Tuesday morning in Asia, Reuters quotes a document suggesting further hardships for Chinese companies seeking to list in the US.

“The US Securities and Exchange Commission (SEC) has started to issue new disclosure requirements to Chinese companies seeking to list in New York as part of a push to boost investor awareness of the risks involved,” said the news.

Reuters added, “Some Chinese companies have now started to receive detailed instructions from the SEC about greater disclosure of their use of offshore vehicles known as variable interest entities (VIEs) for IPOs; implications for investors and the risk that Chinese authorities will interfere with company operations.”

Key quotes (from Reuters)

The SEC has also asked Chinese companies for a disclosure that ‘investors may never directly hold equity interests in the Chinese operating company,’ according to the letter.

Many Chinese VIEs are incorporated in tax havens such as the Cayman Islands. Gensler has said there are too many questions about how money flows through these entities.

The SEC’s move represents the latest salvo by U.S. regulators against corporate China, which for years has frustrated Wall Street with its reluctance to submit to U.S. auditing standards and improve the governance of companies held closely by founders.

The SEC is also under pressure to finalize rules on the delisting of Chinese companies that do not comply with U.S. auditing requirements.

Market implications

Markets paid a little heed to the news amid optimism concerning the covid vaccine and hopes of further easy money policies.

Read: S&P 500 darts to fresh all-time highs as risk sentiment recovers