The Senate passed a bill that would delist Chinese stocks that don’t comply with US auditors.
The bipartisan-backed bill is aimed at protecting investors from fraud by compelling China to allow US regulators to routinely access audit records. If passed, the SEC would be forced to delist noncompliant companies from American exchanges. The House will vote on the bill next.
- Eyes on You. If passed, all US-listed companies have to submit to a US-approved audit every three years, and companies must disclose whether they’re government-owned.
- Honey Pot. Chinese companies raised more than $66 billion through public offerings on US exchanges since 1997. In 2019, Chinese IPOs comprised 18% of all deals.
- Hard Luck. Luckin Coffee, aka “The Chinese Starbucks”, is the most recent shady overseas stock. Luckin fabricated $310 million worth of sales in a massive fraud.
How does it affect my wallet?
This bill’s primary purpose is to protect American investors. Free markets thrive on transparency and investors need to know what they’re buying for it to function efficiently. If investors can’t trust the accuracy of financial reports, it undermines the entire financial system.
If an overseas company wants to list on U.S. exchanges, it should be subject to the same level of regulatory scrutiny as U.S.-based companies. In an era of divisive politics, this particular issue has garnered rare bipartisan so expect to see legislation passed soon.
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