The U.S. Securities and Exchange Commission has reportedly issued new disclosure requirements to Chinese companies seeking to list in New York.
In the latest development for Chinese firms eyeing a market debut in New York, the SEC issued new disclosure requirements, according to a «Reuters» report citing documents and unnamed sources.
Amongst the rules is the requirement to disclosure risks of Chinese regulators intervening with company data security policies and additional details in cases where companies do not comply with accounting rules, as per the U.S. Holding Foreign Companies Accountable Act.
VIE Scrutiny
One area in particular that the requirements target are variable interest entities (VIE) – ownership structures often incorporated in tax havens like the Cayman Islands.
«Please describe how this type of corporate structure may affect investors and the value of their investment, including how and why the contractual arrangements may be less effective than direct ownership, and that the company may incur substantial costs to enforce the terms of the arrangements,» said a letter from the SEC that asked Chinese companies to disclose that investors may never directly hold equity interests.
«Refrain from using terms such as 'we' or 'our' when describing activities or functions of a VIE,» the letter added.
China IPO Tightening
Scrutiny against Chinese listings continues at the SEC, whose chairman Gary Gensler called for a «pause» of such IPOs over transparency issues related to VIEs.
Beijing has also been tightening in the area and is reportedly considering forcing Chinese companies seeking overseas IPOs hand over data management and supervision to third party security firms, ideally backed by the state.
