Us To Introduce Foreign Company Accountability Act

The knife hanging on the head of zhonggai shares finally fell a little bit.

On December 2, local time, the house of representatives of the United States passed the "foreign company Accountability Act" (hereinafter referred to as the "act"), which puts forward additional information disclosure requirements for foreign companies to be listed in the United States. The bill was approved by the U.S. Senate in May and will be submitted to the president for signature.

The act requires that if a foreign issuer fails to meet the inspection requirements of the public company accounting oversight board for three consecutive years, its securities shall be prohibited from trading in the United States.

The news raised concerns about the maintenance of China capital's listing qualification and the restrictions on the listing of Chinese companies in the United States. So, is that really the case?

A senior investment banker in California made it clear to the 21st century economic reporter that "this bill has little impact on China capital stock."

Many domestic market professionals also believe that the passage of the bill will bring more emotional disturbance to the market, and there will not be a large-scale delisting of China capital stocks.

The U.S. House of Representatives passed the foreign company accountability act on the 2nd, putting forward additional information disclosure requirements for foreign companies to be listed in the United States. Xinhua News Agency

Emotional disturbance is more than material effect

"The passage of the bill by the house of Representatives is more of an emotional disturbance to the market, and I understand that it will not have a substantial impact.". Mr. Zou said in an interview with Mr. Smith.

In this regard, some Wall Street investment bankers hold a similar view, "the audit problem of foreign companies does not appear in this bill. The SEC (Securities and Exchange Commission) has always demanded this. It is not only aimed at Chinese companies, but the formal implementation of the future bill will not result in the collective delisting of general stocks in the United States and China.".

At present, no details of the bill have been disclosed after the House vote. From the previous version of the U.S. Senate vote, the debate about China capital stock mainly focused on the audit draft.

The controversy over audit manuscript inspection can be traced back to the Sarbanes Oxley Act of 2002. After the collapse of Enron and world com Inc., the act reformed the supervision of auditing of listed companies and promoted the emergence of PCAOB. PCAOB regularly checks the institutions that audit the books of listed companies, a requirement that currently applies to companies listed in the United States.

PCAOB has said in recent years that several countries, including China, have not reached cooperation with them, and the United States is therefore unable to review audit papers from companies in these regions.

"For a long time, the market has expected that the bill will pass through the US House of Representatives. However, the recent successful listing of shell, lufax and other enterprises in the United States indicates that from the perspective of American investors, it is unlikely that they will be delisted due to audit. ". There are domestic head securities investment bank related responsible person said.

The person in charge also pointed out that in the future, the US president needs to decide whether to sign the bill into law, and then the SEC will formulate the detailed rules. "The attitude of President elect Biden will also affect the formation of the bill.".

In recent years, China capital stock has become an important force in the US market. According to SEC data, as of 2019, more than 150 Chinese companies were listed on the country's major exchanges, with a total market value of $1.2 trillion. According to the documents issued by the US China Economic and Security Review Committee, as of October 2, 2020, there were 217 Chinese companies listed on the three major US exchanges, namely, NASDAQ, NYSE and AMEX, with a total market value of US $2.2 trillion.

"Taking into account the education to be listed on December 4, there were 23 China capital stocks listed in the United States this year. In the recovery period of the US economy in the post epidemic era, if China capital stocks are delisted on a large scale, it will hurt the US economy. ". There are securities firms in charge of overseas business investment banks said.

In his view, if a large number of Chinese Listed Companies in the United States directly withdraw from the U.S. capital market, the size and influence of us exchanges will be greatly damaged, which is not the purpose of the bill. If the problem of audit inspection is solved in the future, it will be good for China capital stock in the medium and long term, which can enhance the trust of global investors in China capital stock.

From the perspective of the chief analyst of Zhongxing stock market, Pang Ming, the chief analyst of China Securities, may also face the pressure of short-term volatility. The company should also pay attention to the existing debt contracts and derivatives contracts, so as to prevent delisting from being recognized as an event of default and triggering clauses such as change of control.

The research of Huaxing securities finds that in the past three years, the stock price performance of China capital stock, which has voluntarily privatized, outperformed the overall performance of China capital stock in the six months before delisting, and the average stock price performance in the six months, three months and one month before delisting also recorded positive growth.

Focus on the three-year negotiation window

Although in the view of the market, there will not be a large-scale delisting of China capital stock, but there are still investors worried that the "second audit" for China concept shares will attract the attention of American short agencies and class action lawyers.

"My view has always been that if an enterprise's own audit is clean, you don't have to worry about it," said Zou. S. market short and class action system is very mature, not only for China capital stocks.

"You can't have worms inside. The woodpecker will pick them up. The enterprise's own problems have nothing to do with the bill. Now we should pay more attention to whether there are secret related issues in the audit manuscript provided by China capital stock.

A senior investment banker in China said: "at present, we can't see the specific provisions of the bill. If we just want to hire an American auditor to conduct a second review of the statements, the impact will be very small. However, there are still some concerns about the audit of state-owned enterprises.

According to the current disclosure of the act, if the general share auditor does not accept the inspection of the U.S. regulatory agency PCAOB for three consecutive years, the stock will be banned from trading.

"These three years have left a window for negotiations at the official level between China and the United States, as well as individual level solutions for China capital stock companies." The securities firms and investment banks in charge of overseas business said in this regard.

The investment bank said that from the current signals disclosed by China, the accounting system of China's overseas listed companies is not an unsolvable problem, which requires good will of both sides. In the future, China and the United States may need to reach cross-border cooperation in audit supervision. "Since last year, when China conceptual shares went to the United States for IPO, they all employed audit institutions in the US registered place. Around 2014, the CSRC also provided audit papers of four China capital stocks. From the perspective of China, cooperation is smooth.".

On October 24 this year, Fang Xinghai, vice chairman of the China Securities Regulatory Commission (CSRC), said that China Securities Regulatory Commission (CSRC) would always uphold an open attitude and sincerity of cooperation, take the initiative to strengthen extensive cooperation with overseas regulatory agencies and international financial organizations, jointly promote the settlement of audit and supervision problems of China capital stock companies, earnestly safeguard the legitimate rights and interests of investors in various countries, and severely crack down on cross-border listed securities issuance Financial fraud, maintain the international image of China's enterprises, and oppose all acts of blocking the international circulation of capital artificially.

Earlier, Fang Xinghai also said in an interview in August this year that China's attitude towards resolving the deadlock on accounting issues is "sincere" and is willing to cooperate with US regulators and allow them to audit some of the most sensitive enterprises.

"China and the United States remain optimistic about reaching a consensus in the future, but from an institutional point of view, we also welcome the return of China capital stocks. After all, with the comprehensive promotion of the registration system in China, Shanghai and Shenzhen stock exchanges have provided more choices for the return of China capital stocks. The senior investment bank said.