As straight as a Jalebi, this deal has managed to gain all the footage since New Year’s Eve. A derivative would be easier to understand when compared with this case of NYSE delisting the Chinese stocks. A rare event wherein NYSE has seemed as a flip-flopper, let us try and dissect the chunks of this not so simple case.
Crux of the Matter
But First, Terminologies
- Delisting means the removal of listed security from a stock exchange, thus barring all further trades in that market.
- Secondary Listing is when the company is listed on stock exchanges other than its primary listing exchange (market where its IPO was released).
- American Depositary Shares (ADS) are equity shares of non-US Companies held by US Depositary Bank and are available for purchase to American investors.
The Turn Of Events
November 12, 2020: The executive order passed by Donald Trump banned US investments in Chinese firms that are linked with the ‘military of People Republic of China’.
Trump claimed that Beijing is exploiting US Capital to finance the development & modernization of its military through its civilian corporates listed in US Stock Exchange. Moreover, China has never complied with the US Audit Standards reasoning them with national interest of Mainland and thus the Chinese firms lack financial transparency and accountability.
The Delisting Plan
As per the November orders, the New York Stock Exchange (NYSE) had decided to delist the stocks on New Year’s Eve.
The three telecom firms within gunshot were:
- China Mobile Limited
- China Telecom Corporation
- China Unicom Hong Kong Limited
- January 4, 2021: The NYSE announced that it is not going to delist the Chinese firms under the rubric that they had consulted with the relevant regulators.
- January 6, 2021: NYSC again changed the plan and decided to carry on with the delisting of the Chinese telecom majors on January 11th. The decision came after Treasury Secretary Steven Mnuchin criticized the decision to grant pardon to the firms.
- These Chinese firms made their secondary listing in the Hong Kong stock market. Thus, all international investors will still be accessible to the firm.
- Investments will now be going into HK’s Index instead of the US markets, whereas significant money inflow may still come from US investors.
- The firms said that US investors who wish to continue investing can get Hong Kong Listed Shares in return to their American Depositary Shares (ADS) deposit in a predefined proportion.
The Undecided Part
Will Joe Biden continue with this executive order or will he further reverse the decision? The question remains unanswered and so does the sustainability of this delisting.
- The Shanghai Stock Exchange is one of the world’s largest stock markets by market capitalization at $4.0 trillion as of November 2018. Unlike the Hong Kong Stock Exchange, the Shanghai Stock Exchange is still not entirely open to foreign investors and often affected by the decisions of the central government.
- The bid-ask spread is the difference between the prices quoted for an immediate sale and an immediate purchase for stocks, futures contracts, options, or currency pairs. The size of the bid-ask spread in, security is one measure of the liquidity of the market and of the size of the transaction cost. If the spread is 0 then it is a frictionless asset.
- A ticker symbol or stock symbol is an abbreviation used to uniquely identify publicly traded shares of a particular stock on a particular stock market. A stock symbol may consist of letters, numbers or a combination of both. “Ticker symbol” refers to the symbols that were printed on the ticker tape of a ticker tape machine.