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Alibaba’s share price drops 10% after SEC says company at risk of delisting

  • Chinese stocks fell on Friday after the SEC flagged Alibaba for possible delisting.
  • Chinese companies listed on US stock exchanges have until 2024 to comply with a new law that requires them to be audited by US-based accountants.
  • “If we were in the same place two years from now, many companies “would be suspended,” SEC Chairman Gary Gensler said earlier this year.

Alibaba shares fell 10% on Friday and dragged Chinese stocks lower after the Securities and Exchange Commission identified the e-commerce giant in a new batch of Chinese companies that could be delisted from US stock exchanges if they don’t. not comply with a new law.

The Holding Foreign Companies Accountable Act went into effect on December 18, 2020. It requires the SEC to identify foreign companies listed on U.S. stock exchanges that will not allow a U.S. auditor to fully inspect their financial books. The SEC finally has the power to delist Chinese stocks if, for three consecutive years, they do not allow a US accounting firm to audit its financial statements.

The SEC said Alibaba has until August 19 to submit evidence challenging its identification of a Chinese company that has not fully opened its books to auditors.

Whether companies based in China will comply with the new law remains to be seen, according to SEC Chairman Gary Gensler. “If we’re in the same place two years from now, many businesses “would be on hold,” Gensler said earlier this year.

China has made overtures to the US to allow some US audits to prevent write-offs. This may not be enough, however, as the law requires all businesses to be audited by a US-based accounting firm.

Earlier this week, Gensler said the SEC would not send accounting inspectors to China or Hong Kong unless Beijing agrees to complete audit access for Chinese companies listed on US stock exchanges. .

There are now more than 200 Chinese companies that have been identified by the SEC for violating the HFCA law, and that could have big implications for investors if Beijing doesn’t give auditors full access to company finances.

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