After months of market confusion following China's announcement last summer that it would release new rules for domestic companies wanting to sell shares in international exchanges, Chinese regulators released a draft of the rules last month, according to published reports.
The draft was released in December, the Wall Street Journal reported Dec. 24. In it, Chinese companies will be required to follow domestic rules relative to foreign investments, cybersecurity and data-security laws, as well as file for local registration with the China Securities Regulatory Commission (CSRC), according to the WSJ report
Chinese companies and international banks who sponsor or are the main underwriters for the company, must file for a registration with the CSRC within three working days after filing for an international IPO, the report states. Companies already listed on foreign exchanges will be granted a grace period to comply with the registration requirements.
According to released draft, Chinese companies can continue to list on foreign exchanges using the variable-interest entity, or VIE, structure, as long as they comply with domestic law and register with the CSRC. The VIE structure was created in and has been in use since 2000 as a way for Chinese companies to evade the law and raise funds from investors through the U.S. exchanges, the WSJ reports.
Additionally, more U.S. regulation came under the Trump administration. Former President Donald Trump signed a bill at the end of his term requiring foreign companies to allow audits of their papers with the Public Company Accounting Oversight Board. Noncompliance would result in the company barred from listing in U.S. stock exchanges for three consecutive years.
Many Chinese companies that are listed on U.S. stock exchanges are still waiting for approval from China's regulatory body that sets the rules for companies' dealings in foreign stock markets.
A directory of Chinese companies by the U.S.-China Economic and Security Review Commission has 248 Chinese companies listed on the NASDAQ, NYSE and NYSE American exchanges as of May 5, 2021.