How Delisting Chinese Stocks Could Hurt Wall Street

On May 20, the Senate passed the Holding Foreign Companies Accountable Act (HFCAA), a bill that would potentially delist Chinese stocks that fail to comply with Public Company Accounting Oversight Board’s (PCAOB) audits for three years in a row.

On the surface, the bill is intended to protect U.S. investors from potential fraudulent accounting by Chinese companies.

Bank of America analyst Michael Carrier said Wednesday that delisting foreign stocks like Alibaba Group Holding Ltd - ADR BABA and JD.Com Inc JD could have a negative impact on Wall Street.

Exchanges At Risk: Exchanges such as Nasdaq Inc NDAQ and NYSE parent company Intercontinental Exchange Inc ICE could take a hit, as well as brokers and investment banks that profit from underwriting fees and trading volumes, Carrier said in a note. 

“If this bill were to become law, it could have some negative effect on the exchanges and the brokers/investment banks given the related fees/revenues and could lower the long term growth outlook given that China has been viewed as a potential growth area ahead,” the analyst said. 

He estimates the exchanges could lose between 2% and 3% of listing revenue, between 1% and 2% of US equity transaction revenue and roughly 1% of total revenue.

Bill May Not Pass: Carrier’s comments come a day after Harvard Law School professor Jesse Fried told CNBC that the bill is unlikely to pass due to opposition from Wall Street. 

“Wall Street will be lobbying to try to block it, because it makes a lot of money off of listings of Chinese companies in the United States,” Fried said.

Benzinga’s Take: The future of the HFCAA may hinge on whether the House brings the legislation up for a vote. Representatives will have a difficult time justifying a “no” vote on the bill to constituents without looking weak on China, but a “yes” vote could potentially irritate Wall Street donors.

Do you agree with this take? Email feedback@benzinga.com with your thoughts.

Related Links:

Market Shrugs Off Potential Delisting Of Chinese Stocks

Chinese Companies Delay US Listings Due To Escalating Tensions