Caixin
Jun 08, 2017 07:41 PM
BUSINESS & TECH

Regulator Extends Review of Chicago Stock Exchange Sale

A trader signals in the Eurodollar futures pit on the trading floor in Chicago, on Sep. 21, 2011. Photo: Visual China
A trader signals in the Eurodollar futures pit on the trading floor in Chicago, on Sep. 21, 2011. Photo: Visual China

(Beijing) – The U.S. securities regulator said it will need extra time to review a landmark purchase of the Chicago Stock Exchange by a Chinese buyer, as observers said concerns about oversight and financing of the deal could be behind the delays.

Chongqing Casin Enterprise Group first announced the deal in February 2016, in what would be the first-ever purchase of a U.S. stock exchange by a Chinese company. Politicians raised concerns at the time about the buyer’s origins, but the Washington agency in charge of reviewing deals for national security considerations ultimately approved the sale in December.

The Securities and Exchange Commission (SEC) was supposed to give its own decision on the deal by a June 7 deadline, but said it has extended that date by two months. It set a new date of Aug. 9 as the deadline for its decision, according to a statement on its webpage.

The Chicago Stock Exchange is one of the oldest in the U.S., but only accounts for a tiny percentage of national trade in the nation’s stocks, in a business dominated by the New York Stock Exchange and the Nasdaq. Casin, a little-known Chinese company based in the southwest Chinese city of Chongqing, has said it could develop the exchange as a boutique marketplace for Chinese companies looking to access U.S. capital markets.

The U.S. regulator may be concerned about Casin’s ability to run the exchange due to its lack of related experience, said Rene Vanguestaine, CEO of Christensen Investor Relations, which provides outsourced services for U.S.-listed Chinese firms. Those concerns could be particularly strong after a series of accounting scandals about six years ago that uncovered lax practices at many smaller Chinese firms that had listed in the U.S. through backdoor offerings rather than more formally vetted IPOs, he said.

“There may be a potential link because the entity that is trying to acquire the exchange wanted to bring mid-cap and small-cap Chinese companies to the exchange and use that as a platform for mid- and small-cap Chinese companies to raise capital in the U.S.,” he said. “That obviously ties back to the accounting scandals of years ago, not directly but potentially.”

He added that financing of the deal could also be an issue, even though no terms of the purchase have ever been disclosed. Recent downward pressure on China’s currency, the yuan, has prompted Beijing to curb capital outflows as a relief measure, making it more difficult for companies to convert their money to foreign currency to pay for offshore deals. Such controls have caused several major deals to collapse, including a $1 billion Hollywood acquisition planned by real estate giant Wanda Group.

“As we’ve seen, there have been growing issues with small or second-rate Chinese companies buying or attempting to buy companies in Europe and the U.S. and then the deals collapse because they can’t get the funding. (The SEC’s delay) could have something to do that,” Vanguestaine said. “This is about the markets. The SEC hopes to be much more careful and sensitive. They don’t want just anybody to acquire the exchange.”

Contact reporter Yang Ge (geyang@caixin.com)

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