Washington, D.C., USA: The Securities and Exchange Commission (SEC), regulator of the financial markets, said Thursday, it has blocked the sale of the Chicago Stock Exchange (CHX) to a Chinese-led investor group due to concerns over the would-be buyers’ ability to supervise the bourse after the deal – ending a two-year battle for an approval of the sale .
“The review process has also raised questions about whether the proposed ownership structure will allow the commission to exercise sufficient oversight of the exchange,” the Securities and Exchange Commission (SEC) said on Thursday.
The commission said it was not satisfied about the source of funds for the deal and who the ultimate consortium owners would be, raising worries the structure of the deal could allow new, unknown entities to assume stakes over time.
The commission, which conducted its own extensive due diligence when reviewing the case, said that the CHX was not able to provide key information it had requested, including access to the potential owners’ books, “leaving various questions unanswered”.
The CHX’s inability to verify the ultimate potential owners would also make it difficult for the bourse to satisfy its ongoing compliance monitoring obligations and would obstruct the commission’s own capacity to oversee CHX, it said.
In particular, the commission said it was not satisfied it would have full access to the exchange’s books and records if the deal were to go through.
Under the proposal, the Chinese-led North America Casin Holdings group aimed to purchase a minority share of the CHX. The deal could reportedly bring the exchange, which accounts for just 0.5 percent of US equities trades, some “vital capital.”
The funding would be used “to boost numerous initiatives designed to benefit the city of Chicago, the US economy and market structure as a whole,” the exchange said.
In August, the regulator approved the sale of the privately owned exchange, but the decision was put on hold for further review within minutes after the announcement. The SEC commissioners are currently led by Chairman Jay Clayton, a Trump appointee.
US congressmen from both political camps had been slamming the deal, arguing that it could give China’s government access to American financial markets
“We must continue to be vigilant, with thorough oversight, to prevent the highly-coordinated and strategic efforts of the Communist Chinese government to threaten our national security through malicious business investments,” Republican Congressman Robert Pittenger said in a statement on the issue.
During the election campaign, President Trump pointed to the CHX deal as an example of how American jobs and wealth were leaving the country.
The commission’s decision comes at a time of rising trade tensions between China and the United States.
In the latest signs of friction, Beijing earlier this month launched an anti-dumping investigation into US sorghum shipments following the US Commerce Department’s “self-initiated” dumping probe into Chinese aluminium imports in late November.
If the deal had been approved it would have marked the first time Chinese investors had been direct owners of a US stock exchange, although not the first time a US exchange had foreign owners. Deutsche Boerse bought the US-based International Securities Exchange for US$2.8 billion in 2007, before selling it to Nasdaq Inc for US$1.1 billion in 2016.
Chicago Stock Exchange, (CHX), competes against the New York Stock Exchange and its three affiliated exchanges, all owned by Intercontinental Exchange and Nasdaq Inc and Cboe Global Markets, both of which own four US stock exchanges.