By Alexander Osipovich
The New York Stock Exchange is in the hot seat after a baffling
flip-flop in which it first said it would delist three Chinese
companies to comply with an executive order from President Trump,
only to reverse itself four days later.
The NYSE's U-turn drew criticism from the administration of
President Trump, who signed the order in November ordering a ban on
the trading of securities of companies U.S. officials say have
links to the Chinese military.
The order was one of the last salvos by Mr. Trump to get tough
on Beijing and put the NYSE in a difficult situation since the
exchange has long welcomed initial public offerings of companies
from China.
Treasury Secretary Steven Mnuchin called NYSE President Stacey
Cunningham while on a trip to Egypt to object to the exchange
operator's reversal, a Trump administration official said. Mr.
Mnuchin supports NYSE's original plan to delist the companies, this
official added.
News of his call to Ms. Cunningham was earlier reported by
Bloomberg News. A spokesman for the NYSE, which is owned by
Intercontinental Exchange Inc., declined to comment on the call
from Mr. Mnuchin.
The NYSE's moves have also provoked consternation among
investors about the ultimate impact on the companies in question,
all of which are in telecommunications: China Mobile Ltd., China
Telecom Corp. and China Unicom (Hong Kong) Ltd. The three stocks
have gone on a wild ride, first tumbling and then rebounding after
the NYSE's about-face.
The Big Board said Dec. 31 that it would move to delist the
three companies' American depositary receipts to comply with Mr.
Trump's order. Then, late Monday, the NYSE said in a notice that it
was putting the delisting process on hold, citing "further
consultation with relevant regulatory authorities." The Monday
notice linked to a guidance document recently issued by the
Treasury Department clarifying which firms are affected by the
executive order, but the NYSE provided no other explanation.
A person familiar with the matter said Tuesday that the NYSE
reversed its decision because of ambiguities in whether the three
telecom companies are covered by Mr. Trump's order. If and when
there is formal confirmation that the three companies are covered
by the order, the NYSE would delist them, this person said.
Lawyers not affiliated with the NYSE said there may have been
some confusion about which companies are covered by the order and
when the trading ban takes effect.
"Clearly there was some sort of new information or
miscommunication that caused them to change direction within a
couple of days," said Alan Seem, a partner at law firm Jones
Day.
"The last thing the NYSE wants to do is have to delist these
Chinese companies," added Mr. Seem, who worked on the initial
public offerings of China Mobile, China Telecom and other Chinese
companies in a previous job.
Mr. Trump's November order identified 31 "Communist Chinese
Military Companies" and banned trading in their shares starting
Jan. 11. But it didn't spell out in detail which of the companies'
subsidiaries and affiliates might also be covered by the trading
ban. That ambiguity prompted a behind-the-scenes fight between
various agencies over how broad the ban should be, The Wall Street
Journal reported in December.
The Treasury Department released guidance on Dec. 28 saying the
ban would apply to subsidiaries that were 50% or more owned by the
blacklisted Chinese companies. That would capture the three
NYSE-listed telecom firms, which are majority-owned by companies on
the blacklist.
But the guidance document also said the ban on subsidiaries
would only take effect 60 days after the Treasury Department
formally named which subsidiaries are covered by the order. The
department hasn't taken that step yet. Potentially, that could
spare the three NYSE-listed telecoms companies, since the incoming
administration of President-elect Joe Biden could reverse the ban
before it takes effect.
The NYSE cited the Dec. 28 guidance when reversing the delisting
decision. It is unclear why the exchange moved ahead with its New
Year's Eve delisting announcement, even though the Treasury
Department hadn't formally named the subsidiaries to be covered by
Mr. Trump's order. Stock exchanges are tightly regulated and
normally work closely with their oversight agencies in
Washington.
Some supporters of Mr. Trump's tough stance on China blasted the
NYSE for its about-face.
"Once again Wall Street has chosen the Chinese Communist Party
over the economic and national security interests of the United
States," Christopher Iacovella, head of the American Securities
Association, a brokerage group, said in a statement.
"The American people deserve an explanation for this unthinkable
reversal," added Mr. Iacovella, whose group has backed tighter
restrictions on Chinese stocks listed on U.S. exchanges.
The NYSE's intent is to comply with Mr. Trump's order, the
person familiar with the matter said.
Some investors were feeling whiplash from the NYSE's moves. One
individual investor said he had taken a major loss on shares in
China Mobile because of the NYSE's original decision to delist the
company.
He was holding the shares in hopes that Mr. Biden would
ultimately reverse Mr. Trump's order but decided to sell after his
brokerage notified him that investors could have trouble
liquidating the shares, the investor said. That guidance prompted
him to sell the shares at a loss just before the NYSE reversed its
decision.
China Mobile's NYSE-listed shares fell 5.9% on Monday before the
reversal was announced, then soared 9.3% on Tuesday.
Paul Kiernan contributed to this article.
Write to Alexander Osipovich at
alexander.osipovich@dowjones.com
(END) Dow Jones Newswires
January 05, 2021 19:06 ET (00:06 GMT)
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