July 13, 2020
Listing on U.S. Exchanges Is a Privilege
Meeting accounting standards set by U.S. regulators is a small price for foreign companies to pay to reap the benefits of American markets.
By Kenneth C. Griffin
Over the past century of global economic integration, the U.S. has emerged as the world’s financial capital: home to the largest investment banks, asset managers and exchanges. This leadership position yields many benefits. Job-creating American companies can avail themselves of a lower cost of capital. The government can readily fund its deficits in times of need. And households have access to an extensive range of investment opportunities — enabling them to put their hard-earned money to work, save for education and retirement, and achieve a better quality of life.
Foreign companies have come over the years to appreciate the benefits of listing their shares on American exchanges. A U.S. listing radically broadens an issuer’s appeal to investors around the world, providing companies preferential access to capital. Today, roughly 20% of all U.S.-listed stocks are foreign companies. The market capitalization represented by U.S.-listed companies in the European Union, the U.K. and China each totals to well over $1 trillion. Many of these companies — such as NXP Semiconductors NV, AstraZeneca Plc, Alibaba Group Holding Ltd. and JD.com Inc. — are leaders in their fields and are reshaping how business is done around the world. The success of this system, which materially benefits the global economy, is underpinned by investor confidence in U.S. regulation and the transparency expected of U.S.-listed issuers.
Trust in markets erodes when fraud occurs — the vivid memory of Enron’s collapse still informs U.S. regulatory standards nearly two decades later. The recent accounting scandals by foreign companies, including Wirecard AG and Luckin Coffee Inc., demonstrate the importance of establishing, monitoring and enforcing robust — and uniform — auditing standards for foreign companies listed in the U.S., equivalent to those required of American companies. This issue has become a source of recent friction with some jurisdictions, most notably China, which have resisted allowing the Securities and Exchange Commission and the Public Company Accounting Oversight Board to inspect foreign-based auditors.
As part of the effort to ensure uniform auditing standards, the Senate passed the Holding Foreign Companies Accountable Act. The bill would require U.S. exchanges to delist a foreign company if the Public Company Accounting Oversight Board is unable to inspect the company’s foreign public accounting firm for three consecutive years. The U.S. is right to require other countries to provide full transparency into their accounting practices as a condition for their companies to list on U.S. exchanges.
On Thursday, the SEC is hosting a series of roundtables on emerging markets. The legislation — and the specter of delisting — should motivate U.S., Chinese and other foreign regulators to work together expeditiously to find a common ground for accounting and oversight standards. The coronavirus pandemic has again shown that in a crisis, a company’s ability to raise capital is existential. In this critical moment for the global economy, regulators are in a position to collaborate for the benefit of all — such that foreign companies maintain access to U.S. capital markets and global investors can continue to place their trust in all companies listed on U.S. exchanges.