The 'gold standard' US market needs to maintain rule of law even if that means major Chinese firms delist, former NYSE president says
- China is signaling that Alibaba and JD.com may delist from the US stock market, former NYSE president Tom Farley told CNBC.
- That comes as five Chinese companies including PetroChina said they plan to exit the NYSE.
An unsettled dispute between the US and China over corporate auditing may lead to delistings by Alibaba and other Chinese companies, but maintaining market protections for investors is more essential to the US stock market, former president of the New York Stock Exchange Tom Farley told CNBC on Friday.
China state-run energy companies PetroChina and Sinopec and three other Chinese companies on Friday each said they plan to delist their shares from the New York Stock Exchange. The moves come as US and Chinese officials were deadlocked in negotiations in a long-running disagreement over auditing regulations. The five companies will submit delisting paperwork later this month.
In terms of those five companies, "economically, it's a non-event, no big deal," said Farley, who served as NYSE president from 2014 to 2018. "These shares trade very little here in the US, the institutional ownership is very little here in the US, they trade much more in their H-shares, their Hong Kong-listed shares."
However, "symbolically it's very important because this is China saying, 'Hey, these are gone and the next batch to go are the Alibabas, the JDS.' That would be a big deal both economically and symbolically," he said, referring to Chinese online retail heavyweights Alibaba and JD.com.
The New York Stock Exchange will "lose quite a bit of volume" if Alibaba were to delist and the same goes for Nasdaq if JD.com were to exit, said Farley.
"All that said, the reason why people want to list on the New York Stock Exchange is because of the rule of law, because these companies can be inspected," he said. "So over the long term to maintain that gold standard, you need to have very high standards. And that's what this is. It's a balance between investor access and the market protections required to run a credible market."
Chinese officials have been reluctant to allow inspections by overseas regulators of local accounting firms because of national security concerns. US lawmakers have set a 2024 deadline for Chinese companies to comply with US auditing rules or face delisting.