Gary Gensler, chairman of the U.S. regulator of businesses and markets, called on staff to ensure greater transparency for Chinese companies following the controversy surrounding the public offering by Chinese rideshare group Didi Chuxing.
“I have instructed staff to request certain information from offshore issuers associated with China-based operating companies before their registration statements are declared effective,” Gensler said in a statement.
He added, “I believe these changes will improve the overall quality of disclosure in the registration statements of offshore issuers that have affiliations with operating companies based in China. “
The new SEC rules were triggered by Beijing’s announcement earlier this month that it would tighten restrictions on overseas listings, including stricter rules on what happens to data held by these companies.
Beijing on Friday reiterated its intention to strengthen oversight of overseas registrations, with the Communist Party of China political bureau saying it was determined to “improve” the regulatory framework.
The Chinese internet regulator specifically accused Didi, who had raised $ 4 billion with an IPO in New York days earlier, of violating personal data laws, and ordered the withdrawal of his Chinese App Store app.
Beijing’s crackdown has scared American investors, causing the company’s shares to fall nearly 50% in recent weeks. They recovered slightly last week, however, jumping 15% in the past two days on the basis of reports that the company plans to go privatized again just weeks after listing.
The controversy has raised questions as to whether Didi had sufficiently briefed investors on the regulatory risks he faced in China, and in particular his frequent contacts with Chinese regulators in the run-up to the New York offer.
Several U.S. law firms have now filed class actions against the company on behalf of shareholders, while two members of the Senate Banking Committee have asked the SEC to investigate the company.
The SEC has not said whether it is undertaking an investigation or intends to do so. However, its new rules unveiled on Friday would force companies to be clearer about how their offers are structured. Many China-based companies, including Didi, are avoiding Chinese restrictions on foreign listings by selling their shares through an offshore shell company.
Gensler said on Friday that those companies should clearly distinguish between what the shell company does and what the China-based operating company does, as well as the exact financial relationship between the two.
“I’m worried that average investors won’t realize that they own shares in a shell company rather than a China-based operating company,” he said.
He added that companies should indicate whether they have received or have been denied permission from Chinese authorities to register in the United States, including whether any initial approvals were subsequently revoked.
And they’ll also need to make it clear that they could be deregistered if they don’t allow the U.S. Public Companies Accounting Oversight Board to inspect their accountants three years after they register.