US securities regulators plan to require additional information from Chinese companies seeking to go public on American exchanges, saying the move will protect domestic investors.
The Securities and Exchange Commission said on Friday that Chinese firms would have to disclose the listing of shares through a structure called Variable Interest Entities, or VIEs, a shell company that is outside China.
Such an arrangement has in recent years allowed Chinese companies to bypass Beijing’s restrictions on overseas listings.
“In light of the recent developments in China and the overall risks, I have asked staff to seek certain disclosures from offshore issuers associated with China-based operating companies before their registration statements will be declared effective,” said SEC Chairman Gary Gensler.
The Chinese government said this month that it was planning rule changes to allow regulators to block companies from listing overseas even if the entity selling the shares is based outside China, a loophole used for years by the country’s large tech firms.
“I worry that average investors may not realise that they hold stock in a shell company rather than a China-based operating company,” Gensler said.
“I worry that average investors may not realise that they hold stock in a shell company rather than a China-based operating company,” said SEC Chairman Gary Gensler.
The new disclosure requirement means Chinese firms must state clearly that their stocks will be sold through a shell company. The listing firms will describe the shell company differently from the China-based operating company and make their financial connections clear to investors.
The US will also require that the listing firms state the risks investors may face in the event of regulatory pressure from the Chinese government.
More to follow …