Securities and Exchange Commission Chair Gary Gensler tamped down speculation that a deal is brewing to keep about 200 Chinese stocks from losing their listings, signaling that only total compliance with U.S. audit inspections will allow the companies to keep trading on American markets.
“There have been thoughtful, respectful, productive conversations, but I don’t know where this is going to end up,” Gensler said in a Tuesday interview, referring to ongoing negotiations. “It’s up to the Chinese authorities, and it could be frankly a hard set of choices for them.”
The SEC chief’s tough words show the U.S. remains unwavering in its demand that American regulators get full access to the audits. Gensler also underscored that U.S. law gives him little room for compromise -- and a congressionally imposed deadline of 2024 for kicking businesses off the New York Stock Exchange and Nasdaq Stock Market unless China acquiesces is looming.
“If we’re in the same place two years from now,” many companies “would be suspended,” he said.
Gensler’s comments follow recent statements from the Chinese government that it has made overtures to allow some U.S. audit reviews. The U.S. and China have been at odds for two decades over the legal requirement, which is meant to protect investors from accounting frauds and other financial malfeasance. The issue escalated at the end of the Trump administration when lawmakers passed legislation that would delist foreign firms that refuse to comply.
China’s securities regulator said in a statement Thursday that talks with the U.S. Public Company Accounting Oversight Board will continue.
The SEC earlier this month started publishing a “provisional list” of companies that could face removal. While the move had long been telegraphed, it fueled a sharp decline in U.S. shares of companies based in China and Hong Kong.
The latest update to the list came Wednesday, when the SEC flagged Baidu Inc., Futu Holdings Limited, Nocera Inc., iQIYI Inc. and CASI Pharmaceuticals Inc. as additional firms at risk.
Futu’s inclusion doesn’t mean the company’s American depositary receipts will be forced to delist in the near-term, the company said in a statement Thursday. Futu has been assessing the potential impact of the U.S. legislation, and is actively exploring plans to maintain its listing status, the company said.
Dozens of other countries permit the U.S. audit inspections, giving American officials the go ahead to interview local accountants and scrutinize the documentation underlying their work. China and Hong Kong have refused, citing confidentiality laws and national security concerns.