US crackdown on Chinese listed stocks won’t spark exodus to foreign exchanges

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After the U.S. Senate passed a bill boosting oversight of companies based in China and other nations that could lead to their removal from American stock exchanges this week, many people wondered if this will cause Chinese companies to leave American markets.

The legislation's focus on Chinese stocks stems from pre-coronavirus concerns that Chinese firms listed on America’s exchanges are not subject to the same investor protection rules and accounting standards as U.S. companies, which leaves small retail investors facing a higher risk of fraud.

"It was a monumental decision," RWR Advisory Group's president and CEO Roger Robinson told FOX Business' during "Maria Bartiromo's Wall Street" on Friday about the Senate bill. "This has been an area ... that's been largely neglected for 20 years. This has been off the radar screen for a couple of decades, and it came back on with a vengeance with the thrift plan."

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The bill, which passed on Wednesday, says that if the Public Company Accounting Oversight Board, a nonprofit established by Congress after the WorldCom and Enron scandals of the early 2000s, is denied access to a foreign stock issuer's books for three years, the Securities and Exchange Commission will prohibit trading in the shares on U.S. exchanges.

Robinson argued the lack of transparency led to this legislation.

"China has clearly not been playing by the rules," Robinson said. "This is now out front-and-center at long last, and the president should be commended for that."

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The legislation tells all the companies in the world that "if you want to list on an American exchange, you have to submit an audit and the SEC has the right to look at that audit, and audit the audit," Sen. John Kennedy, R-La., said on the Senate floor. "And if you refuse not once, not twice, but three times -- if over a three-year period, each of those three years, the company says, 'You cannot audit my audit,' then they can no longer be listed."

One of Robinson's concerns is, before this legislation, hundreds of Chinese companies can be added to many Americans' ETFs.

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"We might have as many as 170 million Americans unwittingly holding the wrong sorts of Chinese companies in their portfolio today," Robinson noted to Maria Bartiromo. "Look at the state public pension systems, university endowments, the vast majority of those are holding these companies because of lack of vigilance and lack of compliance, and forcing compliance more importantly. So this has been, frankly, a disaster."

However, Robinson doesn't see Chinese companies leaving the American markets.

"When you talk about going elsewhere to London, Hong Kong, other places, that's not happening very easily," Robinson explained. "Liquidity is not there. The depth and volume of the markets, the research report, not to mention the prestige, none of that is happening in places like London. London has a total market cap of all of 2.4 trillion. Ours is $37 trillion."

Robinson argued once Chinese companies take a look around the globe at the alternatives to the U.S. markets, "it's a very bleak picture for China; it's a very strong picture for us."

To become law, the bill titled the Holding Foreign Companies Accountable Act would still have to be approved by the Democratically-controlled House of Representatives and signed by the president.

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FOX Business' Jonathan Garber contributed to this report.