SEC Chair Clayton cautioned main street investors on the risks of emerging market companies listed on U.S. exchanges.
In a statement, he highlighted disclosure, financial reporting and other risks and noted the limitations that U.S. regulators face in ensuring compliance and enforcement of securities regulation of these companies, including Chinese companies. Mr. Clayton referenced previous statements warning that while emerging markets often present disclosures in "substantially" the same form as those of U.S. domestic companies, such information often may be "incomplete or misleading."
Mr. Clayton also announced that the SEC will devote a roundtable discussion to emerging markets. Specifically, he said the roundtable will explore topics such as: (i) the "quality of financial information and risk disclosures for emerging market issuers"; (ii) global oversight of member firms in emerging markets by auditors; (iii) limitations on the ability of U.S. regulators' capacity to inspect emerging market companies for compliance with U.S. securities laws and regulations; and (iv) financial professionals' obligations regarding recommendations for emerging market issuers.
Commentary
This is the SEC's second statement cautioning investors on the SEC's inability to fully oversee and regulate disclosures made by emerging market issuers, but most importantly as to Chinese issuers. See also SEC Identifies Investment Risks Concerning Emerging Markets. While the SEC may not be able to pursue Chinese issuers, it can bring enforcement actions against any broker-dealer or investment adviser that puts its clients into such issuers without adequate diligence.
Originally published 5 May 2020
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