SEC Issues Rules on Reverse Mergers. And There Was Much Rejoicing.

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This was highly anticipated:

New rules for major U.S. exchanges promise to make it harder for foreign companies to enter the U.S. market via “reverse mergers.”

The Securities and Exchange Commission on Wednesday said it approved tougher new exchange rules for companies that enter the U.S. market through so-called reverse mergers, arrangements that allow a company to avoid the regulatory scrutiny that comes with an initial public offering. (Wall Street Journal)

At least six Chinese companies have been suspended from trading on U.S. exchanges this year because of {ahem} irregularities. The spotlight on these companies has given both U.S. and Chinese regulatory agencies a black eye and has even had an effect on related issues (e.g. VIEs).

The new rules require more disclosure of financial and other information and longer track records for companies engaging in reverse merger transactions. The new rules apply to the Nasdaq Stock Market, New York Stock Exchange and the NYSE Amex.

We’re still waiting to see what will happen with the regulatory battle between the U.S. and China over disclosure of financial audit information to government officials, but at least these new rules represent some progress.

3 responses on “SEC Issues Rules on Reverse Mergers. And There Was Much Rejoicing.

  1. Justin Liu

    Monty Python reference, nice.

    One thing I don’t quite sure I understand, why are Chinese companies in American stock markets for all the trouble they have to go through? Is it purely capital or is it also a status thing and confidence thing?

    1. Stan Post author

      Capital and status, both yes. There is a limit, though. After the post-Enron reforms (Sarbanes-Oxley), some PRC companies scrapped their plans for U.S. listings and went for London or other places.