July 2, 2020
From my understanding, any country seeking to list companies on US exchanges must first sign a bilateral agreement which primarily results in allowing the PCAOB to inspect audits.
My further understanding is that China refused to sign such an agreement, and thus, Chinese companies should never have been allowed to list on US exchanges. However, China was granted an exemption - it is apparently the only country to have received such an exemption.
It is clear the results of this exemption have been a disaster for retail investors - most of whom are unaware of this exemption and its implications.
The simple solution would seem - revoke the exemption.
Beyond this rather simple solution, some further observations. It has proven clear there is a disincentive by US investment banks and auditors to properly vet and eliminate fraudulent listings.
US investment banks and auditors generate substantial fees from listing and servicing US listings of Chinese firms, even when such firms prove to be fraudulent.
The incentives need to be reversed. Rules should be established such that if a US listed Chinese firm is deemed to be fraudulent:
1) The auditor must pay a penalty of 3X their cumulative audit fees received.
2) The investment banks must pay a penalty of 3X their cumulative commissions and fees.
3) The US exchanges must pay a penalty of 3X their cumulative fees.
These fees should automatically go towards payout of defrauded investors.
Not only would such rules go towards remunerating defrauded investors, it would incentive auditors, investment banks, and exchanges to more thoroughly vet potential new listings.