80 Firms Face Risk of Expulsion from U.S. Exchanges

The U.S. Securities and Exchange Commission (SEC) added over 80 firms to its list of entities that face a possible expulsion from U.S. stock exchanges. SEC’s list includes China’s JD.com, Pinduoduo, Bilibili and NetEase.

The SEC expanded the list on a provisional lineup under a 2020 law, Holding Foreign Companies Accountable Act (HFCAA), which aims to remove foreign-jurisdiction companies from U.S. exchanges if they fail to comply with American auditing standards for three years in a row. The bill was signed into law by the former president Trump.

The U.S. regulators have been asking full access to audit working papers of the U.S. listed Chinese companies, which are stored in China.

China has denied request, citing national security, but regulators in both countries have been discussing the details of an audit deal. Beijing hopes to sign the deal this year.

JD.com said it was aware of the developments and was exploring possible solutions. The company added that it will continue to comply with both Chinese and U.S. regulations.

JinkoSolar Holding and Sinopec were also added to the list.

In March, Chinese regulators had asked some of the country’s U.S.-listed firms, including Alibaba, Baidu and JD.com to prepare more audit disclosures.

After the SEC announced its initial list of targeted companies in early April, China’s securities regulator offered U.S. regulators greater access. Still, a Chinese company would have to get approval from Beijing, as well as highlighting possible “state secrets” and “sensible information” before opening its books to U.S. regulators.

Despite Beijing’s initial concession, the SEC is still pushing for full compliance.

China had also proposed in early-April to revise confidentiality rules on offshore listings, a move sought to remove a legal hurdle to Sino-U.S. co-operation on audit oversight and put the onus on Chinese firms to protect state secrets.

With these additions, SEC’s list of companies now provisionally or conclusively highlighted for possible delisting now numbers over 120, including other big Chinese companies like Li Auto, Baidu, and Yum China Holdings. In total, about 250 Chinese companies are listed on U.S. exchanges, with a combined market capitalization of over $1 trillion.

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